Like the airplanes that now rarely cross our skies, the government’s various relief measures have enabled many businesses to maintain a “holding pattern” since March. Come September, when certain measures are slated to end, business owners will be forced to break this pattern and revive their companies to meet costs, pay down debts and navigate a new “business as usual”. And the ones who plan ahead will have a greater chance of survival.
Despite the many challenges facing business owners over the coming months, they have a valuable asset at their disposal: time. Time to plan for now and to work out how and if their business can survive when JobKeeper, payroll tax relief, relaxed insolvency laws and all the other measures end.
Not surprisingly, any business’ survival hinges on a healthy cash flow, and according to my colleague Bill Lang, executive director of Small Business Australia, in a post-stimulus environment, owners will also need the ability to quickly adapt their business and invest the same passion they had when they first started it to give it a better chance of surviving — and thriving.
According to the Australian Bureau of Statistics, 72 per cent of businesses have taken a revenue hit as a result of COVID-19, while 73 per cent have accessed support measures such as wage subsidies, renegotiated rent/lease and deferred loan repayments.
Lang’s pre- and post-stimulus survival advice includes minimising cash flow, talking to customers and assessing both the current and future markets, paying particular attention to forecasted changes in the demand for products and services and customer behaviours such as working from home.
What small businesses can do now to prepare for the end of the relief measures
The following eight tips can help you prepare your business now for when the relief measures end.
- Assess your current cash flow and calculate what it will be after September (when JobKeeper and other stimulus measures end).
- Investigate whether your revenue streams will recover, and research opportunities for new streams.
- Calculate whether you will be able to afford to keep staff on post-JobKeeper.
- Calculate whether you will be able to meet all deferred payments? (e.g. rent, mortgage).
- Assess whether you will be able to meet your tax obligations.
- Assess whether you will have the funds to meet the next superannuation payment.
- Ask yourself: Do I want to hang on or have I lost my passion for the business?
- Review your personal guarantees, and assess whether your personal assets are at risk (e.g. personal savings, house, car).
Fast-forward to September, and ask yourself, “How will my business survive without the relief measures and in a marketplace changed by new customer demands and behaviour?” Once again, being on the front foot will undoubtedly help you understand your options and make the right call on your business’s future.
10 tips to help your business survive post-stimulus
- Plan: Plan for immediate and long-term post-stimulus environment and have a contingency plan should the economy be hit by a second coronavirus outbreak. Planning can include evaluation of your supply chains and ensuring that future access to materials, components and finished goods will not be impacted by another catastrophe.
- Calculate your projected cash flow, taking into account whether you will be able to meet both operating costs and deferred payments such as rent, mortgage and tax. This will require calculating whether your revenue streams will recover and whether you can benefit from leveraging opportunities for new streams.
- Assess your future staffing needs. If your business has experienced change, review your staffing needs.
- Reduce costs: Where possible, cut costs to minimise further impact on your cash flow.
- Communicate: With your staff, customers, suppliers and creditors. Keep them abreast of the contingencies you will implement to help your business survive and, if needed, negotiate new feasible contracts and terms and conditions.
- Renegotiate rent/lease terms: If you predict you will struggle to pay your rent, speak with your landlord now and renegotiate existing arrangements.
- Funding: Engage with your bank/lender to discuss your funding needs or a repayment/interest rate relief, or seek alternative finance.
- Give yourself more time to recover: The safe harbour and voluntary administration regimes are designed to give companies, and their directors, leniency from creditors and time to “right the ship”.
- Reinvent your business: Prepare for the “new dawn” — whether it’s restructuring your business or restarting with a new model, strategy or market.
- Seek help if you are struggling: If your mental health is being impacted by your financial stresses or the need to let staff go, speak with a trusted adviser or call Beyond Blue on 1300 22 4636 to talk to a trained counsellor who can provide support and advice.
If you decide your business will be in financial distress or on the brink of insolvent trading when the relief measures end — or before — seeking professional recovery and insolvency advice as soon as possible will give you a greater chance of a better outcome. A restructure or insolvency practitioner can explain the best early intervention options for your business, including restructure, voluntary administration and safe harbour. They can also ensure you stay compliant, liaise with creditors, and help you avoid quick-fix solutions such as selling your assets at undervalue, insolvent trading and breaching employment laws that are detrimental to any business’s recovery.
Andrew Spring, Jirsch Sutherland’s recovery and insolvency specialist