While the government’s massive financial assistance package will provide some relief, experts say NZ business owners still need to be proactive and calm – and make hard decisions sooner rather than later.
Called “the most significant peace-time economic plan in modern New Zealand history” the government’s $12bn financial package announced this week will provide much-needed support for many small businesses hit by the economic fallout caused by Covid-19.
Along with a benefit increase to stimulate consumer spending and $2.8b in tax relief, the package will include a $5.1b wage subsidy fund allocated to companies that can show a 30% drop in revenue compared with the same month last year, sending $585 weekly per full time employee to keep them in their jobs.
However, because the wage subsidy is capped at $150,000 per business, medium-sized firms of more than 50 employees will find it inadequate to see them through the hard times that lie ahead – and that have already begun for many.
In the past weeks some businesses have already been forced to make difficult decisions to let staff go, particularly in the forestry and tourism industries which have borne the full brunt of the global economic downturn.
Last week, logging trailer manufacturer Patchell Industries was forced to make 24 redundancies to cope with the severe drop in business that had trickled down from the beleaguered forestry industry. “It’s pretty tough times, to be perfectly honest,” says CEO Brent Whibley.
The Rotorua-based company employs 250 people across its group, so the government’s $150,000 wage subsidy would only provide about one week’s wages for all staff. However, Whibley hopes the tax changes announced in the package might provide some support in the long run.
“There will be an element of relief, we’re still reviewing it and going through the process of what can be applied. It will have an advantage at a point in time but right now we just got to deal with the significant downturn and still have the ability to have sufficient cash to keep our workforce busy whilst we maintain jobs.”
While the government has said that the package is only stage one and more assistance is likely to come, experts are saying medium and large-sized firms – which employ the bulk of New Zealanders – need to prepare now for the worst possible scenario, even if it does not eventuate.
The retail sector, which consists of many medium-sized businesses, is particularly exposed to the economic recession with Retail NZ warning that 10,000 workers could lose their jobs.
“The commercial imperative is to probably cut staffing first… in an era of declining sales you need to look to cut costs,” Retail NZ CEO Greg Harford told RNZ yesterday.
Step 1: Contact your bank
In order to protect jobs, Kiwibank head of business banking northern Dylan Newbold is urging business owners to be proactive. That means immediately contacting your bank and engaging your entire network to find out what support is available and what can be done to ride out the turbulent times.
“You may have to make some really tough decisions early on for the long-term health of your business, so you want to make those decisions as informed as you can.
“They need to [consult] all the advisers they have: accountants, lawyers, business advisers, mentors, bankers. This is a time for businesses to reach out and collaborate with everybody. Don’t make one phone call and think well that’s that, that’s all my problems solved. Reach out to everybody that you can.”
He says New Zealand firms are in the advantageous position of being able to observe situations overseas where Covid-19 was far more extensive. Businesses should base their decisions on those scenarios and essentially start running a drill, he says.
Step 2: Plan for the worst
“Lift your business up and pretend you’re in Italy, pretend you’re in the UK. Put yourself in that environment and ask yourself how would we react to that? What strategies would we need to have prepared or in place if gatherings of more than 10 people are forbidden? What if borders are closed? Start thinking about that now.”
He says that many clients have already started contacting Kiwibank, both to meet the criteria for government support and to see what assistance was available, such as interest-only payment periods in order to preserve cash flow and ride out the slump in business.
“We’re getting people ringing up and putting structures and plans in place, asking for periods of interest-only [on their loans] even if they don’t need it today – they’re just getting ready. So thinking ahead of the curve, that’s what’s going to be the difference between your business entering an unproductive state.”
Kiwibank head of business banking southern Richard Spenceley agrees that acting now and collaborating with as many people as possible is the best way to prepare.
“The prudent part is to plan for the worst. Just take as much relief off your cash flow as you can because that’s going to be the life blood of your business. Two heads are better, the more minds you have working on the problem the more likely you are to get a better outcome. We’re all working on a common goal with the same singular focus of keeping this business flowing.”
Step 3: Remain calm
However, Newbold emphasises that in these uncertain times the most essential requirement for business owners is to remain calm and look after their mental health in order to make the right decisions.
“The human element in a business can amplify fear and uncertainly, or project calm and control. So taking care of themselves, taking time out to relax is absolutely critical because if you get to a stage where you’re making decisions out of fear or panic or desperation, they’re not likely to be the best ones that you could make.”
With the economic and medical impacts of Covid-19 changing rapidly everyday, many employees may be forced to work from home and self-isolate. Spenceley says it’s important for all business owners in self-isolation to keep the lines of communication with their networks open, and to stay in touch with their banks.
“Business owners are going to have to make more effort to keep in touch with their people. Just because people are working from home and self-isolating, doesn’t mean that you should feel isolated.”