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Chartered Accountants &
Business Advisors

PHONEICONS-02+ 04 910 3340
WELLINGTON

PHONEICONS-02+ 04 910 3340
WELLINGTON

Boost Your Cash Flow During the COVID-19 Pandemic

5 May 2020 | Cash Flow

The one thing most small and medium-sized businesses struggle with right now is cash flow. Many businesses have little or no income during Alert Levels 4 and 3, but your expenses didn’t go away, right?

Here are some of the measures introduced recently that could give you some breathing space:

  • Government interest-free cash loans
  • Cash boosting tax changes
  • ACC delayed invoicing

Scroll down for more information on each point.

As with most Covid-19-related issues, new measures are often issued in a rush and forever changing after the initial introduction. We are constantly getting more details, so stay tuned for more information coming your way.

 

Boost Your Cash Flow

Apart from the above, what else can you do to free up some cash? Here are a few actions you can take:

1. Rethink your costs: What do you really need? Are there any products or services that you can cancel?

2. Renegotiate terms: Of course, you can’t cancel everything because then you may not be able to do business anymore. So, ask yourself, are there any terms or costs that you can renegotiate?

3. Offer discounts: You can offer discounts to your clients if they pay their bills earlier. You can also offer discounts on products or services to entice more people to work with you and to move old stock.

4. Rethink your processes: How can you work more efficiently? The more efficient you are, the more money you save.

5. Review your stock holding: Can you reduce the number of stock items you hold at one time?

6. Rethink your capital expenditure: Hold off on buying new equipment if you don’t absolutely need it. Instead of buying a luxury item, consider whether a more basic item can do the same job.

7. Plan, plan, plan: There has never been a more crucial time to draw up cashflow and other forecasts. You also need timely financial reports to measure how your business is performing so that you can make tweaks and pivots quickly when needed. This is where BW Miller Dean can help. Make sure you get in touch so that we can help you to take control of your finances and safeguard your business.

 

Government Measures Introduced to Boost Your Cashflow

Government Interest-Free Cash Loans

A new loan scheme was introduced to help small and medium-sized businesses who are struggling due to revenue lost because of Covid-19.  Under this scheme, businesses who have less than 50 employees can borrow $10,000 plus $1,800 per employee, up to a maximum of $100,000. The scheme is also available to sole traders and self-employed persons.

Before you get too excited, remember that it is a loan and you will need to pay back what you borrow. Unlike previous subsidies introduced, this is only a temporary relief to help you through the worst.

Here are some of the key features:

  • The scheme is available to businesses with 50 full-time employees (or equivalent) or less.
  • The loan will be interest-free if you pay it back within one year. Otherwise, interest will be charged at 3%.
  • The maximum term is five years, but the government will not seek repayment within the first two years.
  • You can borrow $10,000 per firm plus $1,800 per employee.
  • Sole-traders can borrow a maximum of $11,800 ($10,000 basic plus $1,800).
  • You will need to meet the criteria for a viable business and you should be able to prove that your income dropped at least 30% due to Covid-19.

Applications will be open through myIR from 12 May and you have one month to apply, however, this deadline may be extended. Read more about the loan scheme here.

 

Cash Boosting Tax Changes

Here is a reminder of some of the recent tax changes introduced. These changes came into effect from 1 April 2020 and apply to the 2020-21 financial year.

  • Small assets costing less than $5,000 can be expensed immediately. This threshold increased from $500.
  • Depreciation on commercial buildings was reintroduced. If you claimed depreciation previously on the building, you have no option but to start claiming depreciation again.
  • You only need to pay provisional tax if your residual income tax is more than $5,000. Previously the threshold was $2,500.

 

ACC Invoicing Delayed until October 

The ACC usually sends out their invoices from 1 July, but for the 2020-21 year, they’ll issue their invoices only in October to give businesses some cash flow relief. Other invoices issued throughout the year will also be on hold for three months, and they’ll offer payment options once they send out invoices. Find out more here.

 

Protect the Lifeblood of Your Business

How well you have a finger on the cash flow pulse can make the difference between thriving in business and closing up shop.

There has never been a more crucial time to draw up cashflow and other forecasts. You also need timely financial reports to measure how your business is performing so that you can make tweaks and pivots quickly when needed. This is where BWMD can help. Make sure you get in touch so that we can help you to take control of your finances and safeguard your business.

Tax Payments: Separating the Myths from the Facts

24 Apr 2020 | Tax Updates

As with everything relating to COVID-19, there is a whole lot of information circulating about tax payments that sounds too good to be true. And some are.

We want to clear up a few of the common misinterpretations about the recent tax reliefs announced and make sure you understand which are actually available to you so that you don’t get into trouble with the IRD.

 

Myth #1: I Don’t Have to Pay Tax at the Moment

All core taxes are still payable as due and you still need to submit your returns on time. However, the IRD has indicated that they would be more lenient with late payments.

This doesn’t give you the green light to ignore taxes altogether. If you’re in a position to pay your taxes, you should do so. If you could have paid, and you didn’t, the IRD is not going to act favourably towards you.

If you are struggling to make any tax payments, there are some options available to you. Contact us so we can discuss those options and help you work out a payment plan that best suits your cash flow and keep you off the IRD’s black book.

 

Myth #2: The IRD Won’t Charge Any Interest or Penalties If I Don’t Pay

This is partially true. The IRD has relaxed the eligibility requirements for remitting interest and penalties, but these will still be imposed automatically by the IR system.

To have these reversed, you will need to apply for remission to the IRD as soon as practicable. You will also have to jump through all the standard hoops and provide them with financial information to show that your financial difficulties, and the reason you didn’t pay, were related to COVID-19. Financial information may include bank statements, management accounts, and cash flow forecasts, and we can help you to get these together.

Read more about the remission requirements here.

 

Myth #3: I Can Get the Tax Back That I Paid in the Prior Year

You may have heard that the IRD is allowing businesses to ‘carry back losses’, or in other words, that you can get a refund for tax you paid in the prior year if you’re making a loss in the current year.

It sounds great, but it’s only partially true. As always, the devil is in the details.

The first problem with this statement is that the IRD hasn’t issued any details on how they’ll apply this rule. They promised to give us more clarity on the 27th of April.

What we do know is that, in order to claim back taxes that were paid in the 2020 year, you’ll either have to wait until your 2021 annual accounts are completed, or you’d need to do some pretty accurate forecasting to estimate your losses for 2021. This is difficult in the best of times, but even more so now with all the uncertainty around the economy. It would take a pretty good crystal ball to forecast losses for the rest of the year. If you make a claim based on an estimate, you would have to prove your loss at the end of the year once your final accounts are completed.

If you made a loss in the 2020 year, claiming back taxes that were paid in the 2019 year would be a bit easier. If that’s you, please get in touch with us about getting your 2020 accounts completed earlier so you can take advantage of this relief sooner than later.

 

Final Provisional Tax Payment for 2020

The provisional tax due on 7 May is the final instalment for the year ended 31 March 2020. The shut down didn’t happen until the end of March so many of you had a good, or normal, year in 2020. The full impact of the lockdown won’t really hit us until the 2021 tax year.

If you have made normal profits for the year ended 31 March 2020, then remember that the tax thereon is still due.

So, the question of whether or not to pay your last provisional tax payment for 2020 comes down to…

  • your cash flow situation, or
  • whether you’re pretty certain that you’ll make a loss in the 2021 year.

In either case, please reach out to us to discuss your options.

 

You Can’t Get a Refund on Taxes You Didn’t Pay

Another question we sometimes get from clients is whether they can get a tax refund, even though they never paid any taxes. When messages about tax reliefs and refunds are all over the news, it’s easy to get swept up in the excitement and forget the simple principles of how the tax system works.

Remember, the IRD can’t refund something that you never paid.

 

Summary: Assessing Your Situation

As you can see, nothing is straight-forward and what applies to one business may not be relevant to another. Here’s a quick summary of the most important points to consider when deciding whether to pay your tax now or if you should apply for a tax refund due to future losses: 

  • If you’re in a sound cash flow position and it looks promising that you’ll make a profit in the 2020 and 2021 years, pay your taxes.
  • If cash flow is tight, come talk to us about your options. We can introduce you to working through Tax Traders, a tax financing company, which gives you cheaper and more flexible payment options. Alternatively, we can help you to arrange a repayment agreement with the IRD.
  • If you made a loss in the 2020 year, but in prior years you made a profit, you can apply to the IRD to carry back your losses. Ask us to help you complete your annual accounts earlier.
  • If you expect to make a loss in the 2021 year, and you want to request that the loss is carried back to prior years, you’ll need an accurate cash flow forecast. Get in touch if you want us to help you to create a realistic forecast — we can’t see into the future, but we’re as near as you could get to a crystal ball.

 

The tax rules and interpretations are constantly changing. We’ll keep you informed of these changes via our newsletter.

5 Mistakes That Will Cause Your Business to Die a Slow (Or Quick) Death

15 Apr 2020 | Biz Strategy

If you’re feeling like a rabbit caught in the headlights, you’re not alone. We’re on the phone every day with clients who are concerned about the future of their businesses.

But, there’s hope. Many successful companies were started during or just before a recession or depression, including FedEx, Disney, Pizza Hut, Google, and Facebook. 

There’s no doubt that the world would look different after we come out of this crisis, but instead of focusing on the challenges, we should grab onto the new opportunities this would bring. And the first step is to make sure you don’t sabotage your business with decisions made out of a state of panic. 

 

5 Mistakes to Avoid during a Crisis

Let’s look at the five biggest mistakes we see business owners are making right now. 

 

#1: Thinking Its Business as Usual 

Your current business model may not be relevant anymore. The way we work and how people shop may change, there may be broken links in your supply chain, and you may spend time and money on things that bring no value to your business. There has never been a better, and more urgent, time than now to rethink your business strategy. 

 

#2: Burning Your Bridges

It’s easy to make rash decisions that would help you in the short-term, but destroy relationships that you’ve built up over the years. Not paying your landlord or suppliers, retrenching staff prematurely, or ignoring clients who need to get confirmation from you that you’ll still fulfil your obligations, even if it’s only after lockdown – these actions could break their trust in you.

 

#3: Fixating on Cutting Costs 

If you cut too much, your business may no longer be able to function properly. If you retrench all your staff, who’s going to get the work done? If you cancel your lease, where will you service your clients? If you cancel marketing, how are new customers going to find you? 

 

#4: Focusing on Problems, Not Opportunities 

It’s easy, and understandable, to get stuck in survival mode in a time like this, but you need to start looking for the opportunities this crisis is creating. Maybe all you need to do is to make a few tweaks to your business model, or maybe you need to pivot completely. If you find it challenging to see the opportunities for your business, the next point is for you.

 

#5: Being the Lone Wolf 

We’re in uncharted waters; the biggest mistake you can make right now is thinking that you can do it all yourself. Thinking that you can dig yourself out of a hole, make decisions you’re not skilled at making. There’s never been a more urgent time to (maybe virtually) surround yourself with people who have your back, advisors who can support you in areas that you don’t have the expertise in. And if you’re thinking that an advisor is too expensive right now, not getting help may be a lot more costly. 

 

Navigate the Road Forward

We know that it’s not always easy to think out of the box when you’re in survival mode, which is why we want to help you to navigate the future of your business. Let’s help you to understand your current situation, evaluate your options going forward, and guide you through this crazy time.