While we are unsure of exactly how significant the medical impact of COVID-19 will be, the economic impact is already being felt, and will be for an extended time to come.
Due to the limitations on the size of gatherings, medically recommended self-isolation, and the recent memory of the GFC and the state of the economy generally, discretionary spending has constricted overnight. Many industries have been and will be impacted. Probably most industries.
For those in business, it is going to be really important to keep your wits about you and remain focused on the things that you can control.
There are certainly going to be casualties of the economic fallout of the current situation, and it is vital to act quickly to stem the bleeding. Cash flow is paramount to surviving these challenging times, and the sooner it is addressed, the better placed you will be to come out the other side in reasonable shape.
What can you do now to limit the damage? Things are likely to be at least a little quiet, so now is a good time to consider the below.
-Carefully review your business Expenses on a line by line basis to determine if anything can be trimmed. In particular look at your overhead expenses:
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- Are there any non-essential memberships and subscriptions that can either be cancelled or paused?
- Are you paying for bulk email addresses that include former employees or unused email addresses that could be cancelled to take you back into a lower grouping?
- Do you have additional phone numbers or services (including internet and hosting) that are not required?
- Are there any general office expenses that can be reduced? Cleaning, office and stationery supplies, printing costs (think 3 x before you print). Email rather than post. The time is now to go as paperless as possible
-Undertake the same task with your personal/family expenses
-Drag as little money out of the business as possible – only take what you need, not what you want
-Review your staffing. This is an extremely difficult thing to do, but given labour costs in Australia, it is vital to:
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- Reduce Casual Employee hours as far as possible. Very unfortunate, but necessary
- Cancel all overtime, unless absolutely unavoidable
- Work out the trigger points in advance (as in now) for making the tough calls on permanent staff. This will take (some of) the emotion out of making what are without doubt some of the most difficult decisions you will make in your business life. These triggers might be:
- The loss of a certain contract or contracts
- Cancellation of $X in upcoming Revenue
- Sales for the month/quarter fall below $Y
- If your Bank Balance plus Work in Progress plus Debtors (owed to you by customers) less Creditors (owed by you to suppliers) dips below a certain point for a set period of time
-Ensure that you maintain low stock levels – enough to ensure the business can serve its customer base, but not enough to drain cash flow – think “just in time” inventory management
-Provide awesome service and don’t let the standards slip – no matter how tough things get
-Now is the time to undertake an analysis of the goods or services you offer. When everything is going along well, it can be difficult to tell which services or product lines are profitable. When things pick up again, that will be the time to have a clear understanding of which jobs or customers to attack. Consider carefully:
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- The profitability of specific jobs or product lines – take the time to break down revenue and costs for the goods or services you provide
- The ease of scalability (as the market expands or contracts)
- Your point of difference to your competitors – when things clear up a little, why would anyone spend their carefully guarded cash flow with you?
-Keep your suppliers and customers in the loop – communication is key in all facets in life, and ensuring that your suppliers understand when you are having cash flow issues, or that your customers understand that you are having stock re-fill issues
-The banks have recently announced the ability to request a 6 month pause on a number of loan types. Be careful that you undertake all other measures prior to this one and use it as a last resort, because it will not be for an unlimited time frame, and the piper will need to be paid at some point in time
-Keep the communication lines open with the Tax Office. They have also released a number of hardship measures to reduce the impact of the various tax types. They are there to work with all of us. We can assist to work with you and the ATO to negotiate payment plans if required
Remember, in this sort of environment, Cash is King, and if you have any sort of war chest, guard it closely. Spend it even more wisely.
Coming out the other side of something like this without too much damage could lead to significant opportunities. Your business needs to be well placed to take advantage of them as soon as possible.
Regards,
Andy Teece BCom, CPA, CA
Director