Category Archives: Pro Experts

Hawke’s Bay’s leading professional service advisers & leaders

Here we go again

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Let’s not talk up a recession

New Zealand, it seems, is leading the world in its handling of the Covid-19 crisis. Although none of us have a crystal ball, we are in a much better position than most nations, many of whom are suffering under the pressure of vast numbers of new cases and struggling economies.

Over the last few months I have observed economists, investors and market commentators sway between downright pessimism and euphoria. The happy medium is that there has been good growth in many asset classes during 2020, not least of which has been in the mortgage trust arena.

What now?

The Reserve Bank recently announced a funding for lending programme will be ready for the end of 2020. This will involve the Reserve Bank directly funding bank lending at a set low interest rate, which may add to the downward trend in bank lending and term deposit rates.

As house prices continue to rise it appears the Reserve Bank believes that it is better to over stimulate the economy than not. Ultimately more money is likely to flow into assets like residential property, shares and mortgage funds.

Although the global economy is slowing down, some economists believe that this does not necessarily mean that a financial crisis at home is looming and the Government, which is about to start its second term in office, has indicated that it will take extra steps to support the economy.

I firmly believe that we should not be talking ourselves into a recession. Let’s be honest here, people are spending their hard-earned cash; they are not travelling overseas because they can’t, but they are travelling domestically and do want to support local businesses and invest as asset prices continue to rise.

Pessimism in New Zealand seems to be easing. Kiwis are refocusing on their nest eggs and looking to the future, just as they should be. Many people have recognised that although our economy may take a few years to regain its full momentum there are still many opportunities to be had. Midland’s continues to fund various property orientated growth activities throughout the country.  There is good demand in the marketplace for lending products and as banks continue to reward their savers with meagre returns, we are seeing increasing interest in our fund.

In summary, I think we should all be looking firmly to the future, whilst understanding that there may be some challenges ahead. There is a continued trend of investors looking for reliable returns over and above bank deposit rates. The recent closure of Bonus Bonds has also fuelled interest in cash-type investments. Should you wish to discuss any of my thoughts detailed above, then please do not hesitate to get in touch.

Putting your best foot forward in a booming property market

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By Anna Bernie

The COVID-19 pandemic has created a great deal of economic uncertainty both globally and in New Zealand.  During the lockdown in April and May 2020 we were all questioning how the housing market would be impacted.

Contrary to the expectations of some commentators, the NZ housing market has been booming since the end of lockdown.  Whether this is from an increase in Kiwis returning home, new home buyers taking advantage of lower interest rates or people just needing a change, the fact is competition for houses has increased and prices are still rising. According to data REINZ released in September 2020, median house prices across NZ increased by 16.4% in August 2020.  In Hawke’s Bay the increase in annual sales volumes during August was 32.5%, the highest number of house sales for the month of August in 14 years.

Bramwell Bate is finding that clients are often involved in a multi-buyer situation where now, more than ever, they are needing to put their best foot forward in order to have a chance at their offer being accepted.

It is still important, however, that you do your homework first.  A house purchase is one of the biggest investments you will likely make in your lifetime.

When you put forward an offer to purchase a property, you can make the offer subject to several conditions that need to be satisfied before your purchase proceeds.

One of the most common conditions is finance.  Even if you have pre-approval from a bank, most banks will need to see the signed Agreement for Sale and Purchase and approve the property you are looking to purchase before they will give you final approval. This makes the finance condition crucial.

If it is your first home, then you may be eligible for a Homestart Grant or to withdraw funds from your Kiwisaver.  In these situations you should speak with your lawyer about what timeframe your finance condition should have to ensure you have sufficient time to get approval and withdrawal of funds, especially if you need those funds to pay a deposit to the vendor.

A solicitor’s approval condition is also often included in an Agreement for Sale and Purchase.  This can provide your solicitor with a chance to look at the Agreement and the title to the property.  For example, there may be an easement on the property which gives someone a right of way, or a right to run power or pipelines through your property. You may also have plans to develop your property and before you proceed with the purchase it is important to consider whether any easements might restrict your ability to do so.

Another common condition is a builder’s report. This report generally allows you to obtain a report on the condition of the home and other improvements on the property.

We recommend you speak with your lawyer prior to making an offer so that you can consider the number of conditions to include and ensure that you are sufficiently protected.  There may also be instances where you can make enquiries before putting forward your offer, such as obtaining the builder’s report or asking your lawyer to take a look at the title to the property before you proceed.

Whatever you decide, it is important to get the proper advice and support.  A signed Agreement for Sale and Purchase is a legally binding document. Your lawyer will talk you through it, answer any questions, and ensure it is correct before you sign.

Is your business ready for changes to alert levels?

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The last Alert Level 3 Lockdown in Auckland has once again shown that businesses need to be prepared, at short notice, to make to significant changes to the way they work if required to move to Alert Level 3, or 4.  As a result, it’s important to have a plan that you can put into action should this next occur.

An important part of this plan should focus on how you will, if necessary, seek agreement with staff on temporary changes to their employment terms and conditions.

During the lockdown in March, it became obvious that numerous employers were making decisions without first getting agreement with staff. The common situations included:

  • Automatically reducing salaries to 80% or lower, or to the $585 subsidy level – without employee agreement, and
  • Directing employees to take annual leave, leave in advance or leave without pay – without their agreement and without the 14 days’ notice required under the Holidays Act.

It was noted at the time, that irrespective of the disruption and confusion caused by COVID-19, many of these practices were illegal and it was widely expected that we would see these claims filter through to the Employment Relations Authority. We are starting to see the first of these cases appear [note: both of the below cases are being appealed].

Raggett & Ors v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266

In addition to providing hospice services, Dove Hospice also operates a number of retail shops that were closed due to the COVID-19 Lockdown.  Dove proposed restructuring the retail shop employees’ positions and invited feedback, which the employees gave.  Dove subsequently sent letters advising the employees’ positions would be disestablished with an eight week notice period.  The first four weeks would be paid at 80% of their wages and the second four weeks would be paid at the wage subsidy rate of $585.80.

The employees’ maintained they did not agree to be paid anything short of their normal wages and therefore Dove had breached the Wages Protection Act (WPA). Dove stated that due to COVID-19, the employees were not ready, willing and able to work, and therefore the WPA did not apply.

In this case the Authority found that:

  • If employees could not work due to a Lockdown, the employer must pay 100% of wages unless otherwise ‘agreed’.
  • There was no ability to only pay 80% of wages unilaterally.
  • The employer must fulfill its Employment Agreement obligations.

Sandhu vs Gate Gourmet NZ Ltd [2020] NZERA 259

Gate Gourmet provides inflight catering services and was therefore deemed an ‘essential service’.  Business had fallen sharply and the company proposed a partial shutdown of its operations.  The employees in question were all paid the minimum wage which was due to increase on 1 April.  The company decided that only those employees at work would be paid the new minimum wage, and believed that those who were not rostered should be paid 80% of the old minimum wage.  After some objection, the company agreed to apply the new minimum wage, but only at 80%.

The employees challenged this on the basis that 1) reducing wages required consent, and 2) the company failed to pay the minimum wage.

The Authority found that:

  • The minimum wage increase on 1 April 2020 must be paid even if the employee was not required to work, and
  • The company could not agree to pay 80% of wage rate if the employee was on the minimum wage.

While this might seem obvious now, during the confusion of the first few days of the March lockdown this was far from clear to many employers. While there is no doubt that employers were facing a unique situation, compliance with employment law should not be ignored.

To avoid this these issues arising it is important to note that all of your pre-COVID-19 employment obligations still exist – nothing has changed in this regard.  Importantly:

  • You cannot unilaterally make decisions regarding employees terms and conditions, including wages and hours of work.
  • Any agreed changes should be recorded in writing confirming that agreement.
  • If you cannot get agreement and need to reduce costs, you have the ability to restructure the positions in your business.

Policy changes come into force

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August and September saw several new pieces of legislation come into force. Two of these include:

1. The National Policy Statement on Urban Development 2020

2. The National Policy Statement for Freshwater Management 2020

The National Policy Statement on Urban Development 2020 came into effect on 20 August 2020. It replaced the National Policy Statement on Urban Development Capacity 2016.

The NPS-UD 2020 recognises the national significance of having well-functioning urban environments now and into the future and providing sufficient development capacity to meet the different needs of people and communities.

It requires Councils to plan for growth and ensure a well-functioning urban environment for all people, communities and future generations by:

  • Ensuring urban development occurs in a way that takes into account the principles of the Treaty of Waitangi (te Tiriti o Waitangi)
  • Ensuring that Plans make room for growth both ‘up’ and ‘out’, and that rules are not unnecessarily constraining growth
  • Developing, monitoring and maintaining an evidence base about demand, supply and prices for housing and land to inform planning decisions
  • Aligning and coordinating planning across urban areas.

Key points include:

  • Policies pertaining to intensification seek to improve land-use flexibility in the areas of highest demand – areas with good access to the things people want and need, such as jobs and community services, and good public transport services.
  • Minimum parking rates in District Plans are to be removed as a means to improve landuse flexibility in urban environments.
  • Removing minimum parking rates in District Plans is anticipated to allow more housing and commercial developments, particularly in higher density areas where people do not necessarily need a car to access jobs, services or amenities. Urban space can then be used for higher value purposes than car parking. Some degree of car parking will still be required however – certainly for accessible car parking, but the intent is for the number of car parks to be driven by market demand.
  • Although minimum rates may be removed from District Plans, car parking is still likely to be a major consideration for any resource consent process, and it may be that losing this sort of guidance (or ‘acceptable solution’) from District Plans will have unintended consequences on streamlining the process. Have we just leapt to the other end of the spectrum?

The National Policy Statement for Freshwater Management 2020 came into force on 3 September. It succeeds the 2014 and 2017 versions and provides local authorities updated direction on how they should manage freshwater under the Resource Management Act 1991.

Managing freshwater in a way that ‘gives effect’ to Te Mana o te Wai is the central principle. This is all about:

  • Involving tangata whenua
  • Working with tangata whenua and communities to set out long-term visions
  • Prioritising the health and wellbeing of water bodies, then the essential needs of people, followed by other uses.

Core objectives are to improve degraded water bodies and maintain or improve all others using bottom lines defined in the NPS. Key points include:

  • Threatened species and mahinga kai join ecosystem health and human health for recreation, as compulsory values
  • Councils must develop plan objectives that describe the environmental outcome sought for all values
  • Councils will have to develop action plans and/or set limits on resource use to achieve specific attributes.
  • There are tougher national bottom lines for the ammonia and nitrate toxicity attributes

With the Plan Change 9 (TANK) being notified just prior to this new version of the NPS, it is unclear as to how and when the new NPS will be implemented, or how it may affect the TANK process. Whatever the case, it is sure to have a significant influence on future planning processes and the way everyone manages land and freshwater.

It seems change in this sector is coming at a rate where policy approaches are almost immediately redundant upon development, and that initiatives are continuously needing to change before substantial progress is even made.

Investor competition set to drive values higher

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Despite some uncertainty and short-term disruption to market conditions from COVID-19, low interest rates are fueling investment activity, especially for prime properties with strong covenants. The flight to quality and limited stock available to purchase is likely to elevate the level of competition amongst experienced investors driving values higher.

Overall Investor Market Conditions

The economic downturn created by the COVID-19 lockdowns and the introduction of border restrictions has created economic disruption that has reduced the current level of commercial market activity.

However, investors are conscious that a rebound and resumption in more normal market conditions could eventuate due to the forced short-term nature of the situation. As a result, investors are turning their focus towards the solid market conditions leading up to COVID-19 and reviewing the fundamentals. Although not as strong, investors are postulating that the current uncertainty created by COVID-19 could be accommodated in many circumstances, especially if incorporating longer-term projections.

While vacancy rates are expected to lift from 20-year record lows, the secondary sector is facing more challenging market conditions than in the prime sector, as occupiers and investors pursue quality premises.

Despite some uncertainty and understandable cautiousness, investors are spurred on by low interest rates, which will continue to remain low (and may reduce further) for an extended period under current forecasts.

The RBNZ continues to keep monetary policy settings accommodative and financial markets liquid, but there is an overall reluctance from major banks to write new business. This uncertainty has increased the demand for debt advisory services, which are proving beneficial. We are also noticing a greater number of non-bank lenders, high net worth privates, domestic and institutional funds entering the market, albeit at a higher cost of capital.

A recent Colliers International APAC research report noted that the yield spread over ten-year government bonds in New Zealand was amongst the highest in the APAC region. In addition, New Zealand’s approach to dealing with the virus has enhanced its international reputation as a safe haven which is likely to spur greater overseas interest in local assets. In the short-term, the ability of overseas investors to transact will be tempered by border restrictions in place, and likely for the remainder of 2020. A sharp lift in international activity is anticipated once restrictions are lifted, prior to this however, domestic players look likely to take the opportunity to fill the gap.

A lack of alternative options to generate returns will keep investment activity high, however, competition for a short supply of prime assets available to purchase will remain a challenge. This could lead to a return of fear of missing out for investors. If this eventuates, it is likely to push yields lower and capital values higher for quality stock with positive attributes.

Industry hungry for tech-savvy EIT graduates

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EIT’s Schools of Business & Computing are ready to kick off a new term, now accepting enrolments for the Master of Digital Business, the Postgraduate Diploma in Digital Business as well as the Postgraduate Certificate in Digital Business. These programmes are delivered at both Hawke’s Bay and Auckland campuses and have been a major draw card for students since their premiere in February this year.

“Graduates of these programmes will be able to harness digital technologies, manage technology for businesses and improve digital transformation for organisations. The demand for tech- savvy managers has never been greater,” says Dr Sabine Hoffmann, Head of School for both Business and Computing.

Courses cover topics such as data analytics, e-commerce and e-business, digital marketing, digital entrepreneurship and innovation and management of emerging technologies.

Sabine Hoffmann says, “The employability of graduates is our number one focus. With their advanced digital skills, graduates will meet the growing demand for digital know-how and will be highly sought-after in the job-market.”

Lately, the schools have added other cutting-edge qualifications to their portfolio responding to the increased demand from industry. The Master of Logistics and Supply Chain Management, the Postgraduate Certificate in Logistics and Supply Chain Management as well as the Postgraduate Diploma in Logistics and Supply Chain Management are designed for working professionals who want to advance their expertise and keep up to date with a fast-evolving industry.

All these programmes share some courses to enable students to move across disciplines in business and computing and craft a study plan to suit their professional pathway. At the end of the day, it all comes down to job relevance.

Well-trained employees are the backbone of New Zealand’s economy.

The school is also dedicated to connect their students with local businesses – a win-win-situation for students and industry alike. Dr Tom Hartley, senior lecturer at EIT’s School of Computing, for instance is in the process of developing a student-run International Student Business Hub (ISBH).

Expecting to roll out in August this year, the programme plans to support Hawke’s Bay’s international business community by bringing them together with EIT’s bright international business and computing students.

Tom will be working alongside Associate Professor Jonathan Sibley and others on a research project to investigate the advantages that the programme will provide for EIT’s international students and how the programme could link our domestic businesses with international commerce.

Sabine says, “Engaging with EIT’s highly-skilled international students will enable local businesses to connect to the world. And these connections are what EIT values, fosters and continues to create.”

The value of volume

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The COVID-19 pandemic is a significant event.

So ….. where to from here? If I had a dollar for each time I was asked what affect this will have on future property values I could probably retire. Possibly, the more important question should be: What is the impact going to be on volume? Answering this question will probably give a more informed prognosis because in time it will have a more material impact on property values.

‘Alert Level 4’ saw the sudden shutdown of all non-essential business and it is well recognised that operating in this environment has had a major impact on the national and local economy. Much of the modelling regarding the economic impacts and subsequent recovery are based on data from the Global Financial Crisis (GFC). However, even the GFC did not, all but suspend sales transactions so it’s safe to say the property market has had a very big shock. How market uncertainty is managed both in the property sector and more generally in the wider economy will play a big role in recovery.

The lowering of alert levels has allowed real estate agents to operate and we are starting to see an increase in property transactions as the market reactivates. Transactions post ‘Alert level 4’ to date indicate a levelling in values. However, there is still a way to go and the full impacts to the economy may only become evident in the next 6-12 months. The Government, Reserve Bank and Retail Banks have implemented a multitude of assistance packages to soften the blow and help stimulate economic activity. This may help hold immediate value levels, however; all indicators are that we can expect the impacts to be negative as the furlough packages are removed.

Most of the sales data that has transacted through ‘Alert Level 4 and 3’ was negotiated prior to going into ‘Level 4’ lockdown. Consequently, the property market post COVID-19 is in unchartered territory and property market dynamics as we have known them have been rendered obsolete. At the time of writing this article there was not yet a full month’s worth of data of sales transactions. Therefore, we are not able to fully analyse the impact of COVID-19 on property values. The REINZ data for April shows a substantial reduction of 83% in volume of transactions and the record median sale price was clearly influenced by a small volume and weighting of transactions in the higher price bracket. This is not surprising due to the sales transactions being stalled and most regions (bar one) recording their lowest volume of sales transactions since records began.

Currently property agents have reported there being good activity with strong buyer demand, and multiple offers still being presented to vendors. While we are not privy to consideration levels, transactions that have been reported are at comparable value levels to those that would have been expected prior to 25 March. However, business survival and subsequent job losses will have a significant impact on market sentiment, and it is highly likely that any falls in value may not transpire for some time yet.

To assist in quantifying what impact the COVID-19 crisis might have on residential property values we have looked at the impact the Global Financial Crisis (GFC) had on the residential property market.

Internationally the fallout from the GFC was seen in 2007 but locally we did not see the impact on our market until 2008 showing a reduction of 2.36% in our median sale price (MSP) from the 2007 year. Of more significance, was the impact to the volume of transactions, which dropped from around circa 3,700 sales per annum prior to the GFC to circa 2,100 per annum post GFC, a reduction of some 43%.

Economists and expert commentators are suggesting the full economic impact of COVID-19 will be worse than the GFC with unemployment rising to somewhere between 8% to 11%. This is when we will see a material impact on residential property values with most predicting a drop of somewhere between 5% to 15%.

Where there is likely to be an immediate impact is in the volume of sales transactions and days to sell. Ultimately, we have a more positive outlook for our local market than the economists and estimate up to a 5% reduction in value and up to a 40% reduction in volume. Some predict a bigger reduction in volume; however, we are starting from a lower volume of transactions pre GFC.

Indeed, interesting times ahead.

Get your investments right from the start

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This article was written in early May.

In the last issue of the Profit, I used the term “market correction”, and boy oh boy, did we have one of those! Not for a second am I claiming a prediction of Covid-19 and the effect on the markets, but I will state that now more than ever real relationships with our clients are paramount.  Also, it’s important to do your homework on your investments before black swan events take place; we’ve now had two in the last 15 years.

But before we talk about that, let me say that I really feel for the businesses of Hawke’s Bay, many owned and operated by people whom I know personally, and the impact that Covid-19 is having.  New Zealand and to an extent Hawke’s Bay, as primary producing economies, will feel the effects of Covid-19 for some time to come.  Stimulus packages have tried to target employment retention and cash flow concerns but the real economy, effectively the flow of non-monetary factors, will struggle to get back to full pace in a short time.  I feel the real effects of Covid-19 are yet to be realised.

Thankfully, at Midlands our relatively vanilla offering to our conservative investors means that we have not experienced the volatility of other sectors – our strength is based on the quality of our lending book and the liquidity and management practices we have in place.  Sure, we’ve had to work with some borrowers regarding their debt serving abilities, but so far this has been done without any material adverse effect on the performance of the fund.  Being diversified around the country and having low Lending to Value Ratios (LVRs) has helped that profile.

Investors trust Midlands to give them a consistent and conservative return, over and above main bank rates.  They do not invest with Midlands with the intention of significant volatility.  But volatility is what investors got in many other sectors, including multi-sector solutions such as KiwiSaver.

I have written at length in the past about factors such as liquidity, volatility and getting an asset allocation that meets your needs and goals when looking to invest.  There is considerable material available in investment documents, such as Product Disclosure Statements (PDS), that assist in making these decisions. Your total asset allocation (all your investments) should be based on your needs, not just in fair weather, but over time and reviewed accordingly.  Past returns should be balanced with defensive factors, diversification of assets, when and if income is distributed etc.

So, I read with bemusement (and great worry) that many KiwiSaver investors switched to conservative or income funds when Covid-19 had violent effects on the market, mainly in late March and early April.  There is enough literature to say that financial professionals cannot time markets effectively, let alone the layman. So why do it? If you do not trust the manager of your funds to navigate what they can within their investment mandates, I would suggest you have chosen the wrong manager. Already we have seen markets correct back considerably meaning that those who switched have crystallised losses and have missed the considerable “bounce”.

I fear that Gen X and Gen Y will bear the main burden of the fiscal stimulus packages of Covid-19 for years to come, via taxation, estate duties (from the boomer generation), means testing of superannuation and many other vehicles yet to materialise. They should not be burning their long term nest eggs with poor investment and asset allocation decisions as well.

There are many factors that determine what you should invest in, especially in KiwiSaver as a “long” investment.  But time is one of the most vital considerations.  If you do not have the stomach for volatility, nor the time, then a more balanced or conservative type fund is more appropriate from the outset, not after the fact.

Remote work is here to stay, and will be transformational

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How did you cope with seeing computers, keyboards, screens and staff walk out the door on 26th March, wondering whether this remote worker experiment would actually work?

What we witnessed was the future being sucked forward in a vacuum of necessity created by the COVID-19 pandemic lockdown.

Whether you were well prepared or not, remote working as an option is the new reality for many businesses here and around the world.

It is now important to reflect on what this all means and how a remote enabled workforce can add value to our business and organisation, and what technology you’ll need to make it happen.

Remote Work Benefits

Remote working provides the opportunity to reassess existing technology, systems and operational processes that can provide employees with a workplace promoting engagement, diversity, and wellness. This is likely to elevate productivity and performance across the board.

In essence, if you establish a pragmatic work-from-home protocol, you will need to be closer to your workforce than ever before. Nowhere to hide for leaders and employees alike, unlocking potential and giving you a competitive edge.

Being able to tap into a remote work talent pool not restrained geographically can address access to new skills and create new job roles within your organisation. That said, remote work may not be ideal for every business, but it gives many a chance to rethink team diversity and dynamics and the necessary expertise to drive success

The Right Technology and Processes

Business leaders will need to implement the proper businesses tools and software, and managers must put in the right processes. Here are some ideas to help with some of the challenges you will need to address.

One of the most recognised reasons for remote team challenges and failures is poor communication. Good internal communication is the life blood of a great business culture. Without the right tools to facilitate real-time communication, teams will not interact as often or meaningfully, and employees could feel more isolated.

But when teams leverage collaborative tools such as Microsoft Teams, Google Hangouts, Slack, Zoho, and ZOOM, they create transparency and sharing in real-time which results in better accountability, morale and productivity. Key toolset features include instant messaging, video conferencing, voice notes, and document management.

Collaboration

Over 60 percent of teams say collaboration is the most important ingredient of business success. Today’s collaboration software empowers teams to work smarter together whether in the office, in a remote work centre (outsourcing) or at home.

These tools provide real-time delivery and deployment of information as well as instant, reliable and secure access to company data and information whenever and wherever the teams need it. Many of these software tools are available and at no additional cost as part of your Microsoft or Google accounts feature sets.

These virtual work spaces will continue to evolve and can play a critical part in the success of your business. It does this by keeping work organised, prioritised while ensuring teams are always online and co-ordinated.

Team Messaging

Facilitates real-time, one on one and team messaging technology has emerged as the primary means of communication for remote teams. They’ll have the ability to send and receive messages instantly, providing secure access to people and information that email and social media apps cannot.

Video Conferencing (VC)

Communicating face-to face from just about anywhere and anytime, from work, the airport, in the orchard or in a taxi. The VC tool must allow for screen-sharing and recording so participants can share important insights with the rest of the team on any device they choose.

File Sharing

File sharing apps makes available all of your important files and documents via the cloud and sync them across all your device and teams. The same security protocols apply to your users whether in the office or at home, so your data is safe, and access can be audited.

Many of the software tools to achieve a permanent migration to a remote work reality for your organisation are readily accessible, are easy to deploy, are secure, deliver instant results and are easily deployed, if you know how.

Over recent months, many of us have been thrust into a remote work environment, and it looks like this concept is here to stay, largely driven through necessity and the safety of our workforce. But also, the benefits of remote work have been well and truly realised, and can be a powerful tool for organisations going forward.

Business after Covid19 – our new normal

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The COVID-19 pandemic will in all likelihood change the way that we do business for a long time to come.For most businesses’ turnover is down and owners are having to turn their attention to dealing with an environment that is constantly changing during this time of uncertainty, their inventory requirements (especially those who are reliant on the import & export markets or have only just begun to trade again) and their staffing capacity. Maintaining profitability, or in some cases viability and liquidity, could prove to be challenging. Below is a brief overview of some key elements you should keep in mind to help facilitate your businesses likelihood of success.

Short-Term Cash flow Forecast

Prepare a 13-week cash flow forecast. This is often an eye- opening exercise and will effectively capture most entities’ business cycles. The forecast will help navigate choppy waters in the near-term, as it will highlight shortfalls in necessary cash balances. Maintaining an up to date forecast will allow you to easily identify if there is an upcoming risk of the business running out of cash and/or will show if borrowing requirements fall short of actual availability from lines of credit. You will need to ensure that any forecast is subject to revisions in light of COVID-19 and the ongoing impact it will have on the market. Cash flow forecasting is a necessary tool for distressed businesses and can be helpful for entities going through a rough patch or for stronger businesses struggling in this economy. Being in a position to be able to identify when cash may be short, puts you on the front foot for being able to make arrangements to source more capital or to organise payment arrangements i.e. contact with your bank for extended loan facilities, contact with Inland Revenue to arrange payment plans and liaise with landlords to determine whether a rent relief period is feasible.

Monitor actual against your forecast

Cash is King! It is possible that a business can still be reporting profits but have trouble meeting its current obligations to both lenders and key creditors. Problems may develop as customers become slower to pay or, in some instances, don’t pay at all. Some problems may not be immediately recognised and could include changes in product/service demands, increasing overhead costs, use of obsolete production methods or increasing competition. As a starting point review, defer and/ or eliminate all non-essential expenses and capital projects, where possible. Identify whether there are any current commitments that can be put on hold or adjusted given the current environment. Further, accelerate receivable collections, focus on customers that normally pay on time and have started to slow payments; offer discounts to pay now; even keep on top of small accounts.

Adaptive management – learning by doing

When faced with great uncertainty, we have three options:- remove the uncertainty and proceed, proceed anyway and adjust as necessary, or do nothing. If we assume that option 1 is unrealistic, and option 3 is unacceptable, we’re left with only one option – take action, learn, and adapt. The very objective of adaptive management is to provide a framework that drives action now, despite uncertainty. The goal is not necessarily a predetermined target – at least not initially – it’s achieving incremental change. The idea is to take a small step, reflect, learn, adjust, and take another small step instead of large strides that may well lead you off course when dealing with moving targets.

Adaptation goes past simply responding to disruptive events; it also means seeking out and seizing opportunities that are created by market forces. At times like this, it’s this sort of iterative decision making that should be the foundation of your strategic planning.

Short-term action plan

The potential output of a short term action plan would be a succinct, “fit-for-purpose” plan that prioritises the what, who and when for your organisation and can be used as a roadmap for the upcoming months. It can also be used as a key discussion document for sharing with your business’ stakeholders.

The following areas should be noted within your action plan:

  • Ensure you understand the current Government rules and requirements for your business
  • What can I be doing now to prepare? What do I know for certain?
  • Determine short term goals
  • SWOT analysis
  • Overall solvency
  • Working capital needs
  • Operational – supply chain continuity, logistics
  • Customers and sales
  • HR, Employment issues and structure of the business
  • Finance and funding – what Information would be required to get funding (cashflows, plans etc)