COVID – 19 has had an unprecedented impact on businesses around the world. Significant decline in sales has resulted in the depletion of cash reserves across many businesses. Once cash reserves run dry, this can cause irrevocable damage to your business.
Here are some tips that can help you survive this liquidity crunch.
Tax planning: The ATO has announced various government backed schemes that can help you save significant amount of cash by minimizing your tax liability. For example, varying PAYG instalments, relief from payroll tax, interest free payment plan and changing GST reporting cycle
COVID-19 specific Measures: You can apply for temporary cash flow support. Eligible businesses may be able to receive between $20,000 to $100,000 in cash flow boost or a government-guaranteed loan of up to $250,000.
Sales: You need to reevaluate your sales pipeline and come up with best and worst-case scenarios. This will give you an idea on future cash flows and it is highly recommended that you revise your forecast on a regular basis.
Debtor Management: You need to stay on top of your debtors. Send regular reminders and chase up on outstanding debts. Incentives can be provided for early payments. Where clients themselves are experiencing Cash flow difficulties, you might consider negotiating periodic payments.
Creditor Management: Make full use of your supplier’s payment terms. If you have strong relationship with your supplier, you can negotiate a payment plan with them. You can also review supplier contracts and cancel any orders where possible.
Rent Relief: Government has announced “National Cabinet’s” policy on commercial leases. Tenants who are in a position of distress and are eligible for the Job Keeper program, landlords are encouraged to reduce rent proportionate to the trading reduction in the tenants business. The rent reduction is to be through a combination of waivers of rent and deferrals of rent.
Cutting costs: It is imperative to do a detailed analysis of your current and future businesses expenses. Steps should be taken to cut back on all non-essential spending. Questions such as what can be done to reduce the fixed costs in the business while protecting operational capability should be asked. Compare your cost structures with other businesses in your industry and with your past results to identify areas for improvement. Also, do not let personal drawing from the business get out of hand.
Inventory Management: Reduce stock levels and replace slow-moving and obsolete stock with stock that has a faster turnover.
In these uncertain times, it is imperative that businesses keep a very close eye on their profit & loss statements. Identify trends and predict the short term and longer-term impacts of COVID-19. Scenario planning is very important where financial models can be created to analyze the impact of key business drivers.
Business Agility is also an important factor that can help you survive this storm. The speed at which you make decisions to change the course of your organization to tackle the current challenges will define the survival of your business.
At MYM Consultancy, we carefully design Budgets and Cash flow that can help you make informed decisions with respect to strategy, cash requirements, debt financing and improve visibility of potential future outcomes.
