The novel Coronavirus (COVID-19) has disrupted many businesses Australia-wide and has caused otherwise healthy companies to experience major financial distress due to significant operational, financial and liquidity challenges. In these uncertain times, company directors are focused on how to keep their business alive and in a position to come out the other side of this crisis with as minimal lasting effects as possible.
Businesses that are currently struggling for profitability – those with low cash reserves or unstable cash reserves – have been affected the most by the unprecedented changes to the economy. However, even companies that are currently in good financial shape are not immune to the uncertainties of the future – it may take months for the economy to return to normal and company directors need to be prepared.
Cashflow is the lifeblood of any business and is critical in times of uncertainty. We’ve put together some tips to help you become a better business cashflow manager and provide your company with its best chance to survive and ensure long-term viability long after the Coronavirus crisis has passed.
1. Review and Adjust Cash Flow Forecasts
During these challenging times, it’s important to understand how much cash the company has and when it may run out. You need to know in advance what impact this economic crisis will have on your cashflow and how to protect the business if your revenue drops.
While you may currently have significant cash on hand, this needs to be assessed against your ongoing expenses and debts you owe. By reviewing and adjusting your cashflow forecasts on a regular basis, you’ll have a better understanding of what impact a reduction in revenue will have on your ability to pay suppliers and repay debt.
2. Review Capital Expenditure
Given the uncertainty of COVID-19, company directors should be mindful of how they are investing in capital equipment. Generally, in times of financial difficulty capital expenditure is reduced to retain as much cash as possible for ongoing expenses.
For businesses considering capital investment, the Australian Government has increased the instant asset write-off threshold from $30,000 to $150,000, providing tax benefits for businesses that will be able to immediately write-off eligible assets. Additionally, due to the depressed market you may be able to find assets and equipment at discounted prices.
With this in mind, businesses may find this the perfect time to invest in new assets such as machinery to position your company for a long-term future after the Coronavirus and gain a competitive advantage.
3. Maintain Financial Reporting
You need to ensure your financials are kept up-to-date so that you can accurately monitor profitability, overheads, stock levels as well as cash, accounts receivable and accounts payable on a timely basis.
During these times, it’s important to be open and transparent about your financial position with major stakeholders and creditors. If you’re suffering a major downturn due to COVID-19 and need assistance, keeping an accurate financial report and business survival plan will help stakeholders support you through this crisis by way of negotiating payment deferrals or standstill agreements.
Lenders and creditors may offer you a temporary payment deferral if you’re experiencing financial distress. However, it’s important to factor in that the cost and liability of the debt doesn’t disappear. Instead, it continues to accumulate and you will need to repay the debt in the future.
A standstill agreement is a negotiated ‘payment holiday’ with major creditors, including suppliers, landlords and statutory creditors. A standstill agreement provides an immediate and major cashflow benefit for struggling businesses.
4. Cut Overheads
Your overheads will need an overhaul during this time of uncertainty. This is the time for you to get brutal about all unnecessary business expenses and seek cheaper alternatives wherever possible. Many Australian businesses that have been forced to close due to the Government’s strict measures now have no revenue but still have overhead costs. Cutting overheads can help reduce losses and return your business to profitability on the other side.
Ruthlessly examine your profit and loss statement (P&L) to look for savings that can be generated by cutting discretionary overheads. This may include:
- Cutting funding to marketing and advertising
- Reducing staffing costs
- Saving on utility costs
- Reviewing your insurance plans
5. Collect Debtor Payments
If COVID-19 has impacted your company, now is the time to get in touch with your clients and customers and ask them for payment. Unfortunately, if you’re experiencing financial difficulties, customers may also be affected. In these cases, it’s important to work compassionately with your customers and be open to negotiating payment arrangements.
6. Negotiate with Creditors
Options to manage your debts may be limited during these difficult times but it’s vital to keep open lines of communication with creditors about your company’s current financial position. In doing so, your creditors will be more supportive of you during this time and you may be able to negotiate extending payment terms.
7. Consider Alternative Revenue Streams
Many businesses across the country have been reinventing their business models to stay afloat during the Coronavirus crisis, such as restaurants offering takeaway services and distilleries making and selling hand sanitizer. If your business is suffering financially, you may need to consider an alternate revenue stream which can replace or supplement current sales channels that are currently unviable during the Coronavirus lockdown.
8. Keep on Top of Tax Obligations
Although many businesses are hurting during this tough time, it’s important to maintain your obligations to the Australian Taxation Office (ATO) by lodging and paying on time. The ATO is currently providing tax relief for small businesses affected by COVID-19, including low interest payment plans, payment deferrals and remitting interest and penalties.
9. Consider Voluntary Administration
If your company has been severely impacted by COVID-19, initiating a creditor standstill by commencing Voluntary Administration may give your business what it needs to continue trading long-term.
A Deed of Company Arrangement (DOCA) freezes or reduces company debt permanently, allowing you to repay what you owe at an affordable amount over an agreed upon time period. This keeps the business intact to recover and return to normal business operations once the crisis is over. If you’re uncertain what you can offer creditors in payment of their debts at this time, a “Holding DOCA” can stabilise your business and give you a period of perhaps three to six months to better understand your company’s future prospects before putting a payment proposal to your creditors.
How Revive Financial Can Assist
During these times of uncertainty, it’s important to know where you can turn for assistance. Our team consists of a Registered Liquidator, Registered Bankruptcy Trustee, Chartered Accountants and business debt specialists who are here to support you through these challenging times and provide you with non-judgemental advice and solutions. Get in touch with us today on 1800 534 534 for a free 30-minute consultation.