Disaster recovery for SMEs after Cyclone Gabrielle

This article was current at the time of publication.

Director of Gisborne-based practice Traktion, Gareth Yaxley CPA, says it’s hard work getting clients to embrace business continuity and disaster recovery planning.

“We talk to clients a lot about risk management, Yaxley says, [but] some don’t see the value until they’ve been through one of these events and what they look like.”

The Gisborne and Hawkes Bay regions bore the brunt of Cyclone Gabrielle in early February.

The New Zealand Government estimates the damage bill could exceed $8 billion.

“A few clients took it [disaster recovery planning] up on the back of Covid, but as things reopened, some went back to ‘normal’ and no longer saw the benefit,” Yaxley says.

“We’re having some discussions now.”

Cash flow critical

Yaxley says the critical issue immediately after the tropical cyclone hit was cash flow.

A month later, some businesses were still not fully operational, with Traktion focused on helping such businesses understand their minimum cash requirements.

The next step has been redefining what “success” might be over the next year.

“For some, it’s just surviving, keeping the doors open, and making a profit,” Yaxley says.

CPA Australia has a disaster recovery toolkit designed to assist small businesses impacted directly or indirectly by different types of disasters. Importantly, it incorporates advice on where their accountant might be able to help.

Regardless of the disaster that can strike any business, accurately assessing its cash position is paramount.

Yaxley says the government’s recovery support grants (for which applications have now closed) were very easy to apply for, with minimal documentation required.

However, clients did have to estimate their potential losses, what their insurance would likely cover, and what they hoped might be covered by a grant.

With a relatively short application period for government assistance – six weeks for most businesses impacted by Cyclone Gabrielle – determining potential insurance coverage is vital.

CPA Australia’s toolkit recommends getting the process underway as soon as all staff members have been confirmed as being safe and well.

The first steps are to inventory destroyed or damaged, including photos. Affected businesses shouldn’t start cleaning up until they have contacted their insurer or broker.

Cyclone Gabrielle also struck just six weeks before the end of the 2022-2023 tax year, complicating an already hectic period for practitioners and their clients.

Tax relief in New Zealand

The Inland Revenue Department’s (IRD) response lists several forms of relief that might be available for those unable to file or pay on time, such as paying in instalments, or penalty or interest relief.

The IRD is aware tax agents might be finding it difficult to file tax returns for affected businesses before 31 March and will delay asking for outstanding 2022 income tax returns until 31 May 2023.

It also knows some taxpayers will struggle to file GST and EMP returns.

“We encourage people to file those returns as soon as possible, even if they can’t pay at this stage,” the IRD advises.

“EMP filing is particularly important, as we need the returns to ensure we have the most up-to-date information for employees.

“This provides IRD with salary and wage details, enables correct calculations of social policy entitlements, and helps us to deliver the remainder of our 2023 program for individuals to receive their end-of-year income tax assessments.”

With guidance and checklists for the first days, first week, and the first month after a disaster, CPA Australia’s toolkit lays out the steps to longer-term business recovery.

Road to recovery

Initially, reconstruct any lost financial records and, as mentioned, the business’s financial position – both being areas in which practitioners can assist.

Practitioners can also undertake an analysis of the business’s overall financial health.

Part of the post-disaster evaluation should be reviewing how the business operated in the past and how owners would like it to operate in the future.

Opportunities may lie in reviewing operational procedures, marketing strategies, financial results, staffing, customers, potential markets, and innovation.

For example, in the recovery phase, it may be better to adopt new technologies rather than replace equipment on an “old for new” basis.

Before reopening, business owners should also conduct a reality check focused on whether they really want to restart the business, and if so, whether they want it to be the same as before the disaster.

As trusted advisers, practitioners can help.

They can also assist clients to identify any tax issues associated with a disaster. These might include the tax treatment of insurance payments, such as the insurer replacing old assets with new ones.

Directors as guardrails

The Institute of Directors (IoD) has published a disaster recovery toolkit for boards.

IoD Governance Leadership Centre General Manager Guy Beatson says non-executive directors can support management by providing guardrails.

It should be clear at the outset where management can proceed at speed, and where board consultation is needed.

Directors shouldn’t rely solely on management updates but corroborate information with other sources.

The purpose is to stay informed, understand all perspectives, and offer support.

“Never undermine the organisation’s management or get in the way of the response,” Beatson says.