Cash is King

March 24, 2020


As we move into more uncertain times with Alert level 4 we wanted to reiterate that we are here to support you and your business. There is a lot of information coming out and we want to keep you up to date and to provide you with the important details.

 

In this environment cash is king. When we say ‘cash’, we are referring to money in your bank account rather than someone else’s. It is the money you have control of. In times like these forecasting for the next few months is imperative. Please let us know if we can assist you with this.

 

The following comments are all linked back to thinking about cash and levers you can pull in your business to maximise this. It is important that cash continues to flow amongst businesses. If you are not going to pay your debts, then businesses will not be able to pay each other, including you.

 

The first thing you should do is review your debtors ledger, contact and collect all outstanding debts you can. You may need to negotiate payment terms.

 

If you haven’t done so already, you should stop expenses that are not required over the next little while. Even simple things like not getting the newspaper delivered to work, postpone the cleaners, delay any subscriptions that you don’t need, etc. It is helpful to review the expenses in your profit and loss to remind you of some of these expenses.

 

Yesterday a $6.25 billion “business finance guarantee scheme” was announced, providing short-term credit, for small and medium-sized businesses to protect jobs and support the economy. While specific details of the package are being finalised as a matter of urgency, it will apply to businesses with a turnover of between $250,000 and $80 million per annum. There will be:

  • a limit of $500,000 per loan, and
  • the loans will be for a maximum of three years.

The Government expects banks to make these details public over the next few days.

 

The Reserve Bank has agreed to help banks put this in place with appropriate capital rules. In addition, it has decided to reduce banks “core funding ratios” from 75% to 50%, further helping banks to make credit available. The Government will carry 80% of the credit risk, with the other 20% to be carried by the banks. Please talk to your bank or let us know if you would like to explore this option.

 

The wage subsidy is creating a lot of questions. Please do contact us if you need any clarification. We have had confirmation from the IRD that wage subsidies and self-isolation leave payments should be passed on to the employee by the employer and processed as part of the employees normal wages. All deductions of PAYE, Kiwisaver, Student loans, child support etc are made as normal. Whether the employers top up the subsidy with cash payments or annual leave is up to the employer to arrange with staff. The employer will not be liable for income tax or GST on the subsidy from MSD and will not be entitled to an income tax deduction for wages paid out of the wage subsidy.

 

With terminal tax and GST payments coming up please remember the Commissioner of Inland Revenue will also be given the power to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak. This will be assessed on a case by case basis. Businesses should still file their returns on time, even if they can’t make the payment. Please talk to us if you believe this applies to you.

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