Managing business cashflow in uncertain conditions
Looking back at 2021
In 2021 we learnt that emerging risks can quickly disrupt business operations, strategic plans and cashflow. The pandemic, combined with volatile markets and policy changes, put strain on New Zealand businesses. Revenues that were once predictable became unstable and COVID-19 related costs emerged.
The business environment in 2022
So, what can we expect from this year? Looking at economic indications and market conditions right now, the signs say 2022 will be another turbulent year, requiring careful financial management from business leaders.
With Omicron’s arrival in New Zealand, we are facing more restrictions that will impact business operations. The promise of open borders is looking doubtful, and this will put a strain on business looking to hire oversees talent, with labour shortages expected. Closed borders will also impact supply chains and certain industries like tourism, will continue to feel the crunch.
Stock markets are reacting to the impact of Omicron and other challenges, seen in the weak and falling S&P/NZX 50 Index[1]. Some businesses will be further exposed by interest rates rises, inflation expectations and tougher lending restrictions. RBNZ has signalled that lending will get even tighter from here.
For example, the Government’s recent changes to the Credit Contracts and Consumer Finance Act (CCCFA) are making it harder for business owners to access funding from their bank. The additional information that lenders are requesting, and the security that they require for small business lending means access to working capital can be difficult.
Moving from consumer lending to consumer spending, the data shows that while consumer spending rose in December 2021[2], this was driven by the easing of lockdown restrictions before Christmas, and things will be different in 2022 due to Omicron-related restrictions.
With all of this considered, it’s not surprising that business sentiment is tracking downwards[3].
Managing cashflow through volatility
As 2022 shapes up to be another challenging and uncertain year, businesses will need to consider all the options for managing cashflow.
Tax pooling is a great solution for tax paying businesses which are uncertain about their cash flow. Businesses can use Tax Management NZ (TMNZ) to keep money in their business or defer tax payments to a time that suits them, rather than the prescribed provisional tax dates from Inland Revenue.
The TMNZ tax pool can help businesses to reduce their exposure to interest if income tax has been miscalculated and tax pool deposits can be used as a line of credit if more help is needed. Also, if a business has missed or underpaid a provisional tax payment, TMNZ can help to save money by avoiding penalties and Use of Money Interest.
For businesses looking for working capital to pay their provisional tax, TMNZ can help – without any need for security and at interest rates well below traditional lenders. Businesses that have paid their provisional tax into the TMNZ tax pool have access to a working capital facility up to the value of their deposits. This can be drawn upon when short-term working capital is required.
For more guidance on cashflow management and the benefits of tax pooling, click here.
[1] S&P/NZX 50 Index, January 2022: https://www.spglobal.com/spdji/en/indices/equity/sp-nzx-50-index/
[2] ANZ-Roy Morgan Consumer Confidence, December 2021: https://www.anz.co.nz/about-us/economic-markets-research/consumer-confidence/
[3] ANZ Business Outlook Survey, December 2021: https://www.anz.co.nz/about-us/economic-markets-research/business-outlook/
