Strategies for 2020
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GRA Blogs
Articles by Salesh Chand
As we begin to emerge from lockdown into an environment that is markedly changed due to the effects of Covid-19, I’ve been thinking about what business owners and property investors can do to get through the challenging times that are no doubt ahead of us.
Get your accounts done ASAP
At time of writing, the banks are not approving any business loans without reviewing the business’ 2020 accounts. They won’t rely on 2019 accounts, so if you want a business loan, you will need to be organised. Although the banks have money to lend, they are being very cautious about granting loans without up-to-date information.
Currently we are getting clients asking for work to be done urgently because the banks are holding on to funds until they see the 2020 accounts. So get your records in to your accountant so they can prepare your accounts as soon as possible.
Get your finance in place
It is very important to arrange your overdraft facilities, credit cards etc. while you can. For more information about this, refer to my previous blogs – Impact of bank capital requirements and Finance challenges for property investors.
I strongly believe the banking environment will change rapidly and it will become impossible to get an overdraft facility. For businesses/clients who have these facilities in place already, you should hold on to the facilities and protect your position – do not cancel these facilities.
Plan 12 months ahead
Cash is king, so make sure you have cash in the bank or in your balance sheet. Below are four ways you can reduce expenses and manage your cash flow.
1. Payment plans with IRD
One way to build up cash is to put your GST, PAYE and provisional tax on payment plan with IRD. IRD are offering interest-free and no penalty payment plans if your business has been hit hard by Covid-19. In some cases we are getting 6-9 months deferral for clients.
GRA are well connected with IRD and we can help with this if you need assistance. We always encourage clients to use accountants to negotiate payment plans with the IRD, rather than trying do to it themselves. Often, negotiating directly with IRD will result in a rejection or less favourable terms than an accountant with a good relationship with IRD would be able to achieve.
2. Negotiate your lease
If you lease your business premises, negotiate new lease terms with your landlord – you might be able to negotiate your lease down. This will help your cash flow and your overheads. Remember, your landlord might also be struggling, so they may be prepared reduce your rent to keep you as a tenant and maintain their income, rather than risk you having to close your business and they end up with a vacant space.
Or they may be prepared to let you break your lease so you can find somewhere cheaper (and they can find someone who is able to pay more).
3. Reduce unnecessary expenses
Getting rid of unnecessary expenses or reducing your current expenses can help your cash flow. For instance:
• If your staff have work phones, look for better phone packages
• Shop around for more cost-effective internet providers
• Cut back on unnecessary subscriptions if don’t need them
• Try going paperless, which will greatly reduce your stationery expenses (as well as being better for the environment)
• Turn power off at night
In other words, dial back as much as you can.
4. Reduce labour costs
If the work is not there, reduce your labour cost. One way to do this without having to reduce the number of staff you employ is to spread the work between all your employees, but reduce the hours they are all working. For example, to keep all your staff employed, everyone may need to work four days instead of five. Although their income will decrease, they are not going to lose their jobs.
And don’t run overtime. If you don’t have work booked in advance (i.e. for more than three months), spread the available work over 40 hours, not 60. Otherwise you will be forced to make people redundant.
You could also consider getting rid of unproductive staff, i.e. people who have been given the chance to improve many times but who haven’t. These employees may need to be made redundant. Of course you must follow the appropriate process, and take advice from an employment lawyer before making anyone redundant.
If you have to get rid of staff you should – don’t borrow against your family home or take out a private loan to keep them employed because eventually you will run out of funds.
Summary
These are difficult times, but don’t bury your head in the sand and ignore issues. Prepare in advance, and you have your best chance of making it through.
If you need help, ask for it. GRA are well connected with IRD and banks – we have built mutual respect over the years, so we are in a good position to be able to assist. If you need help, please contact us: +64 9 522 7955, [email protected] or fill in our online form.
Salesh Chand
Director of Business Services
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015
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