Coming Out of COVID-19 – Bouncing Back Tips.
Posted On May 21st, 2020 by Profit Network Australia
According to By Daren McKennay, Partner, Crescent Capital Partners,
‘While most of us are focussed on surviving in our respective businesses, those that will come out in front are the ones that prepare for the rebound in the economy post-COVID-19”.
The business and economic impacts of this are profound and especially for micro and small business in Australia. However, here at Profit Network Australia we optimistic that businesses that weather the storm best and prepare for the inevitable pick up in the economy will come out on top.
Here are 4 Top Tips:
Tip 1. Stay in Front of the Change
The number one lesson from prior economic downturns is to stay in front of the change, don’t let the events of the time and the potential impact surprise you. In this current environment, as a small business owner, you can’t plan enough for what’s ahead, you need to run multiple scenarios and have a plan for how you are going to respond. As COVID-19 has shown us all, it’s always worse and moves faster than we first think so don’t kid yourself about the impact and be prepared to act.
Yes, you need to plan for the worse, be prepared to make the hard decisions early but stay optimistic and on the alert for opportunity. Why? Basically, if you become too reactive, you will end up making short term decisions that have the risk of damaging the business into the medium to long term.
Find the Balance – The balance here is to make enough hard decisions that keep the business cash flow positive while also maintaining the essential parts of the business intact ready for the rebound. You have to effectively run on two speeds by using the cash reserves to keep the customer or revenue facing part of the business healthy.
Tip 2. Stay Cash Positive.
The key focus during this time is on staying cash positive and using all your available levers to do so. This is not a time to think about profit, staying cash positive will ensure the business will survive to the other side of the crisis.As a small business owner you need to be making the key decisions and have visibility across all aspects of the business. At Profit Network Australia we would advise you that you need to be preparing at minimum weekly forecast cashflows that look at both short term and long-term cash projections for the business including all the impacts and initiatives you have in place. This needs to be reviewed and acted on, again to stay cash positive.
Keeping the balance sheet healthy and cash balance positive is the main fuel that your small business needs to get through this.
Every business is different. However the following table highlights some examples of areas you may need to focus on to preserve cash.
Table 1 – Examples of balance sheet and P&L initiatives
Cashflow/Balance Sheet Profit & Loss
· Negotiating with the bank for deferral of debt/interest payments and waiver of any covenant breaches
· Look to draw on any available sources of short term cash eg working capital facilities
· Improved debtor collections
· Extending creditor terms
· Delaying or stopping all non-critical capital expenditure · Removing all discretionary expenditure
· Stepping down non-essential permanent staff either in part or in full (some businesses have asked staff to work full hours at a reduced salary for a while)
· Reducing casual labour to what is necessary
· Negotiating tax payment deferrals with the ATO and state revenue services
· Negotiate rent holidays or deferrals with landlords
· Utilising any Government incentives available to help support your business (eg Job Keeper)
Tip 3. Think Positive.
Amongst all the doom and gloom it is important to look for the upside. Many small businesses are reporting that the response to COVID-19 has forced them to make changes to their business model that have improved the efficiency in the business. They have found new and more efficient ways to engage with their customers, developed new work practices that are more efficient and effective or developed new channels to market. Now is a time that you need to think creatively and be agile to take advantage of the change.
An example of this is the way that businesses are using video conferencing platforms like Zoom, there is no doubt some of this will change people’s attitude towards how we interact in the future. This may have profound impacts on business by reducing costs, like business travel for meetings, that were previously a business norm.
Small businesses have found new and creative ways to interact with the customer base and they are finding this more effective than old methods. Profit Network Australia would advise you as a small business owner to use this situation to make permanent shifts in their business model that will have a positive impact on the future and strength of their business. Remember this is only possible where small business owners have a plan and make hard calls early.
Tip 4. Be prepared to call a day…..
Here is the hard part and the bit we all don’t like talking about. Unfortunately, it is evitable that not all businesses will make it through this downturn. The short-term damage to the business may be too great and the medium-term outlook may mean you have little option than to think about attracting new stakeholders and a more serious actions like putting the business into Voluntary Administration (VA) maybe the option that has too be taken. Your stakeholders, including you as the small business owner, may rightly make the call that putting more money in is not the soundest decision in this environment. It’s not saying it’s not a good business in normal circumstances but that the capital required to ‘save it’ is not a rational investment decision if you can find finding from other sources. In some cases, a restructure of the business is what is required to get the business in the right shape.
On A final Note:
Ok, so above are the four tips. So at Profit Network Australia we would summaries them as the following: (1)Stay close to your cash flow and ensuring you have control of all major outflows during this phase will be critical to staying cash positive. (2) Divert cashflow from discretionary expenditure to key parts of your business that you will need to have intact to respond quickly when there is a rebound. The sooner you do this the better you will manage through any elongated downturn. (3)Treat the cash that you have preserved by deferring expenditure, tax, rent, debt, etc in a separate bank account and don’t mix it with your daily cashflow. (4)Treat it like debt, as one day when you are through this you will need to pay it back and only draw on it in absolute emergency. (5) Have a plan for all potential scenarios and be ready to act quickly but (6) above all remember this will pass and you need to be ready to catch any upside.