The COVID-19 pandemic is having a significant impact on the world economy at an alarming pace. Economists and politicians are now expecting the rest of the world (including New Zealand) to go into recession. With New Zealand’s and many other countries borders closed, it is timely to ascertain the likely impact this will have on your business, what steps can be taken to keep your business functioning, and how to come out of a recession in a strong position.
Unlike past recessions, New Zealand is well-positioned to weather a period of fiscal deficits. The country has an economy that has been performing well, a strong balance sheet, a currency that has not been overvalued and forecast low interest rates. In addition, the Government has announced a range of policies to assist New Zealand businesses through the pandemic with details available at this government website and further government advice is available here.
The level of impact the pandemic and recession will have on businesses will vary depending on their industry exposure to the immediate effects. However, all businesses have been impacted by COVID-19 to a certain degree and to come through successfully, it is important to be pro-active by analysing your business and taking action rather than simply hoping for the best.
- This is the time to review your business strategy and long-term plans.
- Review current projects and identify new opportunities that may arise due to the crisis.
- Review processes and identify areas where cost savings can be made.
- Engage with critical suppliers to assess the ability to maintain product supply and evaluate alternative supply options.
- Engage with customers if the ability to provide products or services is likely to be compromised.
- Cashflow and liquidity will be a key issue. It is important to control debtors and update cashflow forecasts regularly to identify any pressure or shortfalls. Keeping your bank informed of both your position and business plan, as they are far more likely to extend lines of credit if kept informed and they can see that contingency plans are in place.
- Your staff are a crucial part of your business and it is important to keep them abreast of your business’ approach to the crisis and how a safe and healthy environment will be maintained. Plans should be put in place to prevent and indeed cope with infections in the workplace now that we have moved out of Level 4.
- With quality staff being in high demand and the cost of training new employees high, it will be important to retain existing staff during the downturn. Excess labour could be managed by asking staff to take leave owing, offering unpaid leave or looking at reduced hours for staff (put in place a four-day week). The Government’s wage subsidy scheme can assist in paying staff if certain criteria is met.
- With many international borders closed, now is a good time to consider whether there is new or untapped opportunity for growth within the New Zealand market.
Taking a step back to analyse your business’s strategy, reviewing strengths and weaknesses, keeping tight control of cashflow and creating a plan to protect your business will make a significant difference to your business’ future viability. The challenge lies in controlling the immediate impact on your business while continuing to meet the needs of your customers, staff and retaining your infrastructure for when the upturn comes.
Please contact your Hayes Knight advisor if you wish to discuss how best to navigate your business through a recession or if you would like any clarification on the assistance available through the Government’s COVID-19 economic response package.