10 Things to Safeguard Yourself from Covid-19 Financial Crisis

1. Wage Subsidy- Round 2 of wage subsidy is still available until 01-09-2020. If you meet the criteria and have not already applied, then do apply for the wage subsidy. Round 3 of wage subsidy (Resurgence wage subsidy) is for 2 weeks of payment and is open till 03-09-2020. The criteria of Resurgence wage subsidy are very similar to previous one. The main criteria is a drop in revenue. A revenue drop of at least 40% because of COVID-19, for a 14 day period between 12 August to 10 September 2020, compared to a similar period in 2019. The scheme of wage subsidy is being administered by Work and Income Department.
   
   
2. Small Business Cash Flow Loan Scheme (SBCS)- if you meet the criteria for wage subsidy, you are also eligible to apply for the small business loan. This loan is provided by the IRD. Application are open till 31-12-2020. The maximum amount loaned is $10,000 plus $1,800 per full-time-equivalent employee. The annual interest rate will be 3% beginning from the date of the loan being provided. Interest will not be charged if the loan is fully paid back within one year.
   
   
3. Estimate provisional tax- tax year 2020 might have been a good year for you. It also means that your provisional tax due on 28-08-2020 (first installment) will be 5% up on 2020 tax. Review your numbers again and estimate provisional tax for 2021 to ensure you are not burdened by unnecessary tax bills. For example, in 2020 your taxable income was $200,000 on which Income tax (28%) $56,000 was paid. However, last five months of results shows you have experienced drop in revenue. Thus, it should coincide with the Income tax for 2021. Perhaps you need to estimate the tax bill 2021 to be 40% below on 2020 to $33,600. It means your P1 payment due on 28-08-2020 will be $11,200 as oppose to $19,600
   
   
4. Contingency Cash Reserve- you should ensure that you have minimum of 3 months of cash reserve. In order to build your contingency fund. Look at all your business and personal expenses for a month. These expenses should be fixed in nature that are not related to the proportion of income. It means when you don’t have sales for three months what kind of expenses you will still have. Multiply that number by 3. And this is the amount you should have in your Cash Reserve Fund readily available on demand.
   
   
5. Review of Insurance Policy: Insurance is a very complex area. The business of insurance industry is on a fear. You can easily under or over insure yourself. Look at what Risk you are insuring (Life, Health, Car, Fire, Theft). Then look at what is the realistic probability of it happening. What is the insurance expense vs your business or household income? Perhaps this is the time to do comprehensive review of your insurance policies.
   
   
6. Review of your Personal/Business Debt Structure: often it is seen a small business owner is too busy in their daily life. They don’t get enough time to review their finances. You can make a list of all your debt including all kind of loans car loan, home loan, business loan etc. In your list include principal amount owing, interest rate and time left in the loan. Do a comprehensive review of your loans. The idea is to shift the high interest rates loans to the low interest rate. For example, look at ways how can you shift credit card balance or car loan to the home loan rate. For your home loan we all are in highly volatile interest rates situation. You can divide your home loan into 3 parts then fix it for 6 months, 1 year and 2 year. By doing that you will diversity your risk and hedge yourself from up/down in interest rates.
   
   
7. Property investment: investment into a property depends on your personal financial position. If you own 3-5 properties, you may want to consider selling a property. Currently market is very hot. You can sell a property and reduce your lending. However, if you don’t own a property it might be a good idea to invest now. Basic financial principles are a key in making right decision. Diversification – don’t put all your eggs into one basket. If all your investment is tied into financial markets (kiwi saver, stocks, bank deposit etc), then you should diversify into property. Look at yield %, rental demand in the area, etc.
   
   
8. Hedge yourself from any volatile financial set back: review all your assets. Only look at income earning assets. Divide them into 3 categories Cash (bank deposits, term deposits), paper assets (stocks, kiwi saver, managed funds) Real Assets (Land, Building). Including all assets New Zealand and Overseas. Make a list of these assets including market value, date of purchase, and net yield %. Then look at financial principle that how you can hedge your assets from any volatility.
   
   
9. Customer services: as a small business owner. Customer Services is a key to your business success. You need to communicate with your customers. If they are struggling offer them ways you can serve them better. Help them. Offer them multiple ways they can contact you. Offer them various payment options. Remember the most important thing is we are all in this together.
   
   
10. Investment in IT: Investment not only means investing your money. It also means investing your time. You will need to learn new things such as use of online meetings, digital paperwork, virtual collaboration etc. You need to ensure you have a policy against fraud, spam and any unauthorized use of your emails, phone and websites. A simple two factor authentication which is offered by most providers can add an extra layer of security. You can install two factor authentications on your online software, Emails, Websites etc.