The Government’s Business Finance Guarantee Scheme has been an epic failure. Today, some welcome changes to the scheme have been announced by Finance Minister Grant Robertson.

The scheme has been too restrictive and there was far too much red tape for struggling businesses to jump through. The Government budgeted more than $6 Billion for the scheme when it was originally announced. However, to date, only $150 Million has been lent to just 780 businesses.

Today, the Finance Minister has announced some very welcome changes to the scheme.

What Has Changed:

  • The scope of the loans has expanded from supporting COVID-19 impacted cashflow to supporting businesses to respond to, reposition and recover from the impacts of COVID-19
  • The maximum loan amounts have increased from $500k to $5m; and
  • The loans can now be used for capital expenditure.
  • The maximum loan term has been extended from 3 years to 5.
  • There is now an ability to refinance other debt under the scheme.
  • The turnover cap for businesses has been expanded from $80m to $200m.
  • There are no establishment or early repayment fees.

The total funding available under the scheme is limited. Applications need to be made by 31 December 2020. More detail can be found here: https://treasury.govt.nz/information-and-services/new-zealand-economy/covid-19-economic-response/measures/bfg

The loans still do not apply to residential or commercial property investment. We think the Government has missed an opportunity here as a housing shortage looms with the significant number of New Zealanders returning from overseas.

Let’s hope these changes to the Business Finance Guarantee Scheme allow many more businesses struggling through their response to the pandemic to access the funds they need to secure their operations and thrive in the new normal.

How to Apply

Like the original scheme, applications are made through the participating banks (ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac).

Normal credit processes apply, so if you intend on applying you will need to pull together information to support your application.

What the bank will require will vary case by case, but we suggest at a minimum they will want your most recent financial statements and up to date forecasts/budgets (ideally three-way).

If you need help with any of this, reach out to the team for help by emailing your regular MBP Business Partner or support@mbponline.co.nz.

As small business owners plan for how they will operate after COVID-19, there are some important business questions to be asked about the coming business recovery. These questions will help you determine what adaptations you want to keep, whether your business model is working, and if there are additional changes you want to make to keep your company operational through future economic downturns.

It’s not always fun to do this sort of examination, but the answers to these questions will help you to make the best possible decisions for the future.

What Worked and What Didn’t Work in my Business Model?

Almost all small business owners had to make changes to their business model. Whether it was hosting meetings with clients on Zoom, learning about encryption technology to allow employees access to sensitive information from home, offering restaurant food for take-out or managing dance classes online, most small businesses adapted in some way.

Ask yourself:
Have I have to adapt my business model? Did I alter my goods or services in any way? Have I changed how my premises are used? Do these adaptations enhance my business in any way? Do these changes highlight gaps in my business model that should be addressed? Should I make some of these adaptations permanent?

Maybe you have a lot of clients who would prefer to have meetings online rather than face-to-face. Perhaps offering classes online is a way to reach out to students or clients who can’t attend weekly sessions in person. There may be perfectly good reasons to continue with a revised business model.

Do I Need to Make Changes to my Supply Chain?

You have some control over your supply chain, but not a lot. Disruptions happen and they can drastically affect your business.

Review how the various components in your supply chain reacted to the pandemic and whether they helped your business or hurt it.

Ask yourself:
Did the suppliers in my supply chain remain open and transparent with me? Did they reach out to me to discuss revising our agreement? Were they reasonable in their expectations and willing to work with me? Do I need to have alternate arrangements or back-up plans in case there are future supply chain disruptions?

Your supply chain has a huge impact on your business. Trusting your suppliers and knowing you can work with them will allow you to feel more secure in the future.

How has my Team Adapted?

Your team has faced a great deal of stress and uncertainty during COVID-19, due to professional and personal concerns. Team members may have had to transition to new ways of working—at home, on a new schedule, or with new policies and procedures in place.

Ask yourself:
Are there changes to how my staff works that I could continue to implement? Should I provide additional training for staff? Have I communicated openly with them? How adaptable was my team?

One benefit from having employees work from home more days a week is that such opportunities for remote working can boost employee morale while saving you money. Now that you’ve invested in the technology to allow staff to work from home, is it worth it to allow this scenario to contine, even a few days a week?

Final Thoughts

In addition to looking at your business, take a look at your customers and clients. Were they supportive of your business during this time? Did they turn elsewhere? Did they respect the changes you made to your business or the policies you put in place?

Each of the above questions about your business model, your supply chain, your team and your customers, will help you make informed decisions about your business recovery as COVID-19 restrictions are lifted.

Get in touch with us to chat about your business recovery.

We’ve heard this before: the COVID-19 pandemic is an unprecedented global health and financial crisis that has caught many off guard. While the threats to human life are very real, the damage to the health of businesses is really just starting to show. In the coming weeks and months, many businesses will be in a fight for financial survival.

The seriousness of the disease and the lack of a vaccine (at the time of writing this) have prompted governments around the world to impose strict measures to contain the virus. These restrictions in people’s movements and the temporary lockdown of non-essential services have definitely taken a toll on businesses and families across the country.

While there has been a lot of talk on how to avoid contracting the virus and how businesses can operate safely to adapt to the current conditions, this article will focus on helping you manage the financial survival aspects of your business during COVID-19. Read on for our tips on cushioning the impact on your business.

Update Your Financial Records.

The first step in planning your financial survival in such a difficult environment is getting a crystal clear and up to date understanding of the financial position of your business. This means updating your financial records and keeping them in order as frequently as possible. Knowing things such as your cash position and assets that can be sold quickly will go a long way in helping you make informed business decisions. Good records build a solid foundation for a successful business. They’re also really important when applying for loans or government grants, subsidies and assistance.

Examine the Financial Health of Your Business.

Following on from the first item, it is important to get a good grasp of your business’ current financial health through a careful analysis of your books and statements. By looking at key financial figures, you will get an idea of how your business is doing. You can see fundamental factors such as the liquidity and solvency of your business which will help you decide on the best steps forward as you deal with the crisis and the aftermath. Chat to us for help with these financial pieces.

Improve your Cashflow.

A lot of businesses across the country are facing cash flow problems at the moment. If you are one of them, you’re certainly not alone. However, the key here is not letting the problem worsen or become unmanageable.

Preparing a cashflow forecast should give you some forewarning before issues even arise and will allow you to address them early on. By quantifying your forward bookings, forward orders, and work in progress, you will get to identify future cash flow and plan accordingly.

You can also take the following measures to boost your cash flow:

  • Identifying the demand for your products or services, so you’ll know where to focus on and where you can reduce stock orders
  • Cutting back on unnecessary expenses
  • Urging your debtors to pay you, negotiating on a payment scheme that will work for both of you
  • Seeking payment extensions or debt re-structuring
  • Invoicing as soon as you deliver the product or service
  • Seeking external investors or lenders
  • Taking advantage of financial support from your government

Increase Online Sales Where Possible.

With the government implementing stricter restrictions to prevent the further spread of the virus, you should find ways to move your products and services online – if you can – and continue to serve existing and new clients. The situation that we are in is forcing business owners to re-imagine their business and re-evaluate their business models. You’ve got to adapt and be resilient. It’s those businesses that will survive.

Survive 2020 by Managing Your Financials

It’s safe to say not many of us factored a global pandemic into our 2020 business plans. Although there is no foolproof strategy to get through what’s proving to be a turbulent 2020, the tips for financial survival shared here should be able to give you some guidance on minimising the risks to your small business.

Want some more help? Our team of advisors love to help businesses. We’ll help you develop a plan to weather the headwinds of the coming months, while saving you time and money along the way. Contact us today and we’ll work through it together.

At a time like this, money is tight for pretty much every business. Cutting costs can be a quick and easy way to improve the profitability of your business. Introducing well thought out cost saving tactics can bring immediate savings and ensure you remain profitable in the short term.

But it’s important that cost-control measures are carefully managed. Eliminating errant expenses is clearly beneficial, but indiscriminate cost-cutting could lead to a drop in quality, or poor morale if staff fear being made redundant or are not given the tools they need to do their job efficiently.

This risk is heavily reduced by identifying where you can safely trim costs, setting clear cost-reduction targets, and researching any cost saving tactics before making changes to your business.

Planning Effective Cost Saving Tactics

The first step towards reducing costs is identifying your major cost areas. These are likely to include:

  • Production
  • Purchasing
  • Sales and marketing
  • Financing
  • Administration
  • Facilities maintenance.

Start by assessing your profit and loss statement for the last six months and rank all your expenses from highest to lowest, working your way down the list and identifying areas where you can reduce costs. It’s a good idea to first focus on identifying cost-saving measures in areas where you’ll see the biggest return. For example, it’s smart to work toward saving 5% on a $200,000 expense rather than a slightly higher percentage on a lower-cost expense.

Trial New Ideas

You might find it’s difficult to anticipate savings without actually implementing new systems and processes. Remember that any changes you make don’t need to be permanent. If you aren’t sure if a cost-saving measure is suitable for your business, consider trying it for a few months then assessing the results. This way, you’ll soon get an idea of the real cost savings without having to commit long-term to new processes or changes.

Any new processes or systems should be benchmarked and frequently revisited to ensure they are still suitable for your business. Consider asking staff for feedback around any changes to make sure there are no hidden problems that could be costing you more than the cost-saving value.

If you are in doubt about any potential changes, ask an advisor. We are more than happy to chat through this with you.

Quick Savings

You might be surprised to find that significant savings can be made without having to worry about your quality and affecting performance. Here are the most popular ways to trim costs without making radical changes.

  • Eliminate unnecessary costs – start with waste reduction, heating costs, and utility charges.
  • Reduce inefficiency by identifying manual tasks that could be sped up with technology or completed less frequently.
  • Avoid frequent, small orders that cost more than larger orders and take additional time to complete.
  • Reduce travel expenses by booking air travel earlier and using cheaper accommodation on business trips.
  • Find alternatives to high-priced suppliers or negotiate better payment terms or discounts on purchased goods.
  • Revise your credit policies to encourage prompt payment.
  • Brainstorm quick cost savings with your staff – they might have some useful suggestions you may have overlooked.

Significant Savings

Once you have identified your major cost areas, you may want to investigate potential ways to save money by changing existing processes.

Some of the most common opportunities are listed below, but before adopting any changes you should be aware of any potential damage to your core business activities.

  • Cut payroll costs by outsourcing non-essential activities.
  • Redesign your existing processes to eliminate duplication, and cut time wastage.
  • Make use of current technology, or latest industry thinking.
  • Agree to long-term supply contracts, or guarantee a minimum purchase amount to secure better terms.
  • Trim back or revise your current product offering and remove poor-performing products.
  • Form strategic alliances with other businesses to buy larger volumes.
  • Consider subletting office space, or relocating to a more cost-efficient location.

There may also be other costs such as long-term, fixed-rate business loans or fixed-price contracts for raw materials that you may be able to reduce when these are up for renewal or tender.

Pitfalls to Avoid

Reducing costs can have a negative effect, so you’ll need to be sure that changes will not compromise your operational performance.

Some common pitfalls include:

  • Over-dependence on one supplier could put you at risk if your supplier fails.
  • Reducing your marketing budget could affect your marketing strategy.
  • Tighter control of business finances could leave you without a safety margin if cash flow becomes tight.
  • Cutting short-term costs such as training, research, and development, or advertising can lead to long-term weaknesses.

Employee Costs

Reducing employee-related costs is generally risky and counterproductive in the long-term. Reducing costs such as staff training or meeting times could lead to poor staff morale and reduced productivity.

Changing an employee’s terms and conditions can also create legal issues in some circumstances, so it’s always a good idea to get expert advice before making a decision. Making employees redundant could bring short-term costs and the risk of possible employment proceedings. It may also contribute to low morale.

These problems can be reduced by maintaining clear communication with employees. Introducing cost saving through improved practices and procedures will require a degree of employee ‘buy-in’ so it’s important your employees are aware of why you are making changes. Employees may need additional training and support over these periods.

Next Steps

  • Schedule a staff meeting to review your costs and brainstorm possible saving measures.
  • Commit to an ongoing cost-control and monitoring process (or delegate to key staff to manage the process).
  • Ask our advisors to assist you with cost-saving initiatives or brainstorm ideas.

Please get in touch with us to find out how we can help you to identify and implement some cost saving tactics. Click Here to book a free chat with an MBP Business Partner.

Your “war chest” is the financial reserve your business has built up so you can take advantage of an opportunity or cover unexpected costs or emergencies. Building a cash reserve when finances are tight, however, can be difficult. You need money to continue running your business but, if at all possible, you want to keep your reserve account healthy.

Here are some ways to build (or preserve) a cash war chest during a crisis.

Shift all Extra Money to Your Cash Reserve

Some of your costs stay the same during a pandemic, but other expenditures are no longer necessary. You may have had money allocated for business travel or networking events that will not happen. Discretionary money for entertainment or hiring may now be freed up. Take some of that money (or all of it, if possible) and add it to your cash reserves.

Preserve Cash Where Possible

Go through your expenses and see what you can reduce. Are there ways for you to cut costs so additional money can be put into the cash reserves? Are there services you pay for that you don’t need to right now? Are there software subscriptions you don’t use?

Variable costs are often the quickest areas to save money.

Make laying people off the last resort, if at all possible. For some businesses, employees have to be let go but remember that at some point you’ll need to have your business operational again and for that to happen, you need employees.

Take Advantage of Assistance Programs

Government assistance programs are there to help you during this crisis. Pay attention to any loan repayment terms and don’t sign up for anything your business can’t afford to pay back, but if there are programs you’re eligble for, use them.

It’s not just the government offering assistance, either. Financial institutions, large corporations and loan providers are all looking at ways to support small businesses and prevent entrepreneurs from closing up shop. Do some research to see which of those you’re eligible for and apply.

Use that money to cover your expenses, and use any freed up money to build up your reserves.

Make Alternative Arrangements with Suppliers

You may be able to push back payments to your suppliers. Talk to your suppliers to find out if there are ways to extend your payment deadlines without damaging your relationship with them. See if there are arrangements that save you money without costing them a lot. Even slightly extended payment terms can help you with your cash flow so you don’t have to dip into your war chest.

Final Thoughts

When you’re trying to keep your business alive, putting money in the cash war chest might not be high on your priority list. Even if you can’t put money into the reserve, do your best to avoid taking money out of it unless absolutely necessary. If you do have to dip into it, try to pay that money back as quickly as you can.

Find ways to reduce expenses (especially variable expenses) and even bring some money in if you can. There are some things you can do to save yourself some money and live to fight another day.

If you’re worried about cashflow, please get in touch with us.