If your business is being severely impacted, is it better to restructure now rather than continue to lose money for an unspecified amount of time? Even if your business isn’t trading directly with China, there are still likely to be implications from the economic fallout coronavirus has created across the globe. The general rule of thumb is to stay the course and look to support Chinese business partners wherever possible.
The broader picture
As New Zealand is so reliant on trade with two major partners, with more than a third of our exports going to China and Australia, we stand to be doubly affected by the economic impacts of coronavirus. This is because Australia’s number one export market is also China, and any downturn in Australia’s earnings is likely to have flow-on effects for New Zealand exporters beyond the loss of the direct Chinese market. China’s neighbours in Asia are also seeing a rise in reported cases, so the effects are likely to continue long-term.
Already businesses in the timber, tourism, hospitality and fresh produce exporting industries are being severely affected by the halt on trade and visitors from China, with crayfish being returned to the sea. As a nation we also rely heavily on imported manufactured items – most of which come from China. Retailers face running out of stock as supplies from China dry up, and other businesses that rely heavily on Chinese suppliers for components or plastic wrap are already concerned about their production schedules and supply.
What can you do?
If coronavirus isn’t brought under control quickly, there are several proactive steps you can take to give your business a stronger chance of recovery:
Support Chinese business partners
It’s taken New Zealand more than 30 years to build up a good trading relationship with China, and the value of that is far greater than a single viral outbreak. While it’s understandable that businesses will want to safeguard their supply chain and export markets, knee-jerk transfers of existing relationships to other markets should be avoided. Instead, consider how your business could support your partners in China if possible, by providing longer payment terms or other such measures. Such supportive treatment will be remembered long after the effects of coronavirus have been forgotten, and your business will be looked on more favourably in future. As Chinese ambassador to New Zealand Wu Xi quoted: “When in prosperity friends know us, and when in adversity we know our friends”. It should also be remembered that this kind of problem is not unique to China. No market is immune from issues like coronavirus.
Speak to creditors
Don’t suffer in silence. Speak to your bank to investigate options for an overdraft or revised payment terms. You will likely find them more receptive given the nature of the issue, which is beyond any business owner’s control. Likewise, ask your landlord about concessions on your rent and discuss repayment options with creditors to provide some relief during the disrupted trading period. The IRD may also be willing to discuss options.
There’s certainly hope that the situation can be resolved without taking drastic measures. However, should the need arise there are a number of restructuring options such as voluntary administration and formal creditor compromises that can ensure a business survives. These are alternatives to liquidation and provide companies with breathing space to organise and deliver a recovery plan for the business and its creditors.
An ounce of prevention is better than cure
Unlike the situation in the wake of the Christchurch earthquakes, there will be no vast rebuild programme to stimulate the economy again once the coronavirus outbreak has abated, and the longer the situation continues, the more likelihood of a global recession. Whatever the future holds, it’s up to business owners to be proactive about managing their cashflow and seeking assistance before it becomes too late.
Taking preventive measures early will give your business the best chance of making a full recovery. We will continue to provide material on how your business can weather the storm.