Every business owner is currently wondering what they can do to enhance their survivability during the COVID-19 outbreak. To help us put the pieces together, this guest post is written by Sally Xia, Principal Accountant at Newmarket Accounts. Read on to learn her strategies on financials, communications and knowing the actions to take.
We’ve all seen how the community has been affected by the spread of coronavirus as the pandemic continues and information becomes the primary currency. In particular, the business community has felt the effects in a very deep and personal way. Small business owners are fearful for their livelihoods and doing everything they can to cope with social distancing, slowing trade and the consequent reductions in cash flow, turnover and revenue. I’m certain we are all sparing a thought for those in travel, events and hospitality.
In addition to these B2C organisations dealing with the immediate effects of the current climate, many B2B companies are also feeling the strain. Only one tier back from the coalface, the B2B companies rely on the health of the business sector for their income. Accordingly, during times of economic uncertainty, many B2B companies need to grapple with reduced spending in their market and the consequent effects on their revenues.
In this climate, it’s critical to avoid being caught in a downward spiral. After all, this is a temporary phenomenon. Humanity always comes through tough economic times and it will again. To prevent your business becoming a coronavirus statistic, consider these points…
1. Panic is the Enemy
Sounds obvious, right? Yet in uncertain times, people often act rashly and live to regret it because they haven’t thought through the implications of a decision made in fear. This is especially true when the information of today is superseded tomorrow. The best practice is to rely on the decision making process you already have in place and discuss any unknowns with trusted advisors who are across the situation.
2. Be Transparent in Your Communications
Nobody expects you to have all the answers in uncertain times. Regardless, they do expect and deserve honesty. When communicating with customers and staff, keep your integrity high, share relevant information willingly and share their burden. This will place you in the position of being a trusted leader and their confidence in you will soar. Remember, this is temporary and you need to consider relationships post COVID-19 so this is a wonderful opportunity to strengthen ties and build communities.
3. Minimise Expenses
It’s time to consider all your expense lines. With revenues down, expenses must follow so look at each of your outgoings with a question mark in your mind. Can this be reduced? Is this a necessary expense in the current climate? Is there a cheaper option? This lean approach will assist with meeting your financial obligations. Another element of this is to address inefficiencies. Doing so will improve productivity and result in reduced costs and other benefits. Of course, now is not the time to be taking on additional non-essential spending so steer clear of this and also consider temporarily reducing salaries or other financial distributions.
4. Use Your Cash First for Expenses
Paying your expenses from your cash reserves is the best fiscal strategy in uncertain times like these. As a general rule, try to keep 10% of your yearly income in cash for this purpose. Attempt to avoid using a line of credit at this time. While it may appear easy and tempting on the surface, the repercussions further down the track will create an additional interest burden. Instead, concentrate on reducing expenses to create more cash.
5. Reduce Your Payment Terms
This is one of the simplest tricks businesses can put in place that will have an immediate positive impact. The time lag between the invoice date and the payment deadline has a significant effect on cash flow. Consider tightening your payment terms to ensure you’re limiting the negative effects the passage of time has on your profitability.
Consider the graph below to see how much adjusting payment terms can affect your revenue.
6. Get Your Head Around the Stimulus Package
This can be tricky so make contact to get a full understanding. In short, the support package is made up of –
· $17.6 billion in the first stimulus package
· $90 billion from the Reserve Bank
· $15 billion from government targeting access to finance
· $66.1 billion additional funds announced March 25
If you’re in business, chances are there is government financial assistance ready for you to access if you know how. Make contact and we’ll guide you through the maze.
Some Final Thoughts…
Many traditionally structured accounting firms may struggle to be agile enough to keep up with the fast pace of change the business world is suddenly encountering. With new announcements from governments coming out daily, their conventional approach, while effective during predicable times, may not be tuned to quickly identify opportunities to best assist their clients. Newmarket Accounts has been at the cutting edge of providing speedy and accurate advice for our clients from our inception so, for us… it’s business as usual.
Most importantly – stay healthy! Practice responsible social distancing, hand sanitising and isolation if required. Eat healthy food, remain active and engage with other positive people regularly. We are currently enduring a temporary holding pattern while a storm passes. Once the danger is gone, you will want to return to normal as quickly as possible so keep your business safe now and allow this to happen.
No doubt, there will be questions and comments about some of the information in this article and I’d love to be able to help you further so feel free to leave a message below or feel free to call or email.
A final thought… luck will not get you through this. A sensible plan will.