GRA Blogs

Articles by Salesh Chand.

HOW TO PREPARE YOURSELF FOR ANOTHER RECESSION

AUTHOR: Salesh Chand
Partner and Director of Business Services

POSTED: 02 February 2014

2008 was a year all of us would like to forget. It was the year when the global financial crisis (GFC) hit and many individuals, businesses and countries went bankrupt, redundancies happened in their droves, unemployment went up and government cutbacks were the norm.

Those of you who have been through other recessions will attest that this was definitely one for the record books. But as a country (New Zealand) we have managed to bounce back from the worst of it with businesses starting to employ again and books starting to appear in the black, as well as the housing sector still creeping up in value. Don’t be fooled though, as we all know too well another recession will hit; it’s not a matter of if, it’s a matter of when.

One of the major lessons we all learnt is that available cash is so important to have during a recession. Not so much because it allows you to buy assets at low prices, but it allows you to keep afloat when everything around you is starting to sink in debt.

You see in 2008 and onwards, everyone ran out of cash, the banks would not lend, the value of assets such as properties reduced in value, people and businesses were cash-strapped, as everyone was spending funds based on a predication that 2008 was going to be another growth year. In reality, 2008 came with major recession and cash flow difficulties, consumers suddenly realised that they did not have funds to run their business or even afford mortgage payments. This is when the majority of the high leverage investors started to fire sale their assets in order to improve their cash flow. Some investors had to go bankrupt, some ended up with minimal assets, and others got by without any issue. Why is that?

The investors that got by without any problems during the recession were cash rich or had cash facilities in place, so when they really needed the cash it was there to get them through the hard times. Below are some of the important points to remember and to utilise, because we all know another recession will hit; we just don’t know when or how hard it will be.

Always have enough cash available, e.g. overdraft facility, to help you get through the next 6 - 12 months. If there was a crisis, such as a recession or a personal issue (e.g. you don't have a job), you will be able to give yourself enough time to plan the best outcome for you and your family instead of having to fire sale your assets.
Learn to cut back on unnecessary expenses and stay lean with your household and business expenses during the crisis period.
Get rid of any assets that are not performing.
Make friends with bankers, lawyers and accountants, as these are the people who will help you during a crisis.
If you have good equity in your family home or investment property, you should always refinance and get the maximum overdraft facility while you can. This doesn't mean that you can go out and spend this overdraft; this is your cash flow that you will use on a rainy day.
Banking rules are getting tight in New Zealand, so you should refinance and get as much facility as you can now.

It’s important to plan for the best and worst situations by having cash freely available with facilities like overdrafts, revolving credits, credit cards or just cash in the bank. This will enable you to make the most of any economic situation.

If you would like to discuss your long-term cash flow goals, give us a call to arrange an appointment on +64 9 522 7955, or fill out our online form.

Request a Meeting

Salesh Chand
Partner and Director of Business Services

09 522-7955

saleshc@gra.co.nz

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015

Seminars and workshops for property investors, business owners and anyone seeking to create and protect their wealth.

View all our upcoming events

Learn More

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.