The past months have seen businesses of all sizes either significantly scale down operations or close their doors as they followed government-mandated stay-at-home orders to reduce the transmission of COVID-19. In line with these measures, businesses observed social distancing rules by adopting remote work set-ups. By doing so, they promoted safety while making productivity possible.
But not every business has the luxury to do this.
Several businesses that can implement remote work policies, particularly small businesses and start-ups, are still assembling their solutions on the fly. The COVID-19 outbreak is not just demand/customer impacted, the supply side is also putting many businesses at financial risk due to postponed deliveries, uncertain supply chains, reduced productivity, lost business — or all of the above.
If you are worried about the financial state of your small business post-COVID-19, here’s something that may put your mind at ease. A game plan that considers a potential emergency budget, bookkeeping solutions, and refinancing can help your small business stay afloat.
Check Your Eligibility for Government Assistance
The Australian Government announced the availability of stimulus packages for small business owners struggling with the pandemic’s effect on their business. If your business has been severely impacted with a reduction in revenue of 30% or more, you and your eligible staff may be able to access the JobKeeper Payment. If you have been made redundant or stood down you may be eligible (including Sole Traders) to access JobSeeker support, with an increased income test of up to $79,000, as well as the COVID-19 supplement payment.
The government of Western Australia has also made provisions for relief packages for small businesses that employ staff. Each relief package includes:
- A $17,500 grant and payroll of $1 to $4 million
- The $1 million tax threshold brought forward by six months
- The waiving of rental payments of State Government-owned buildings for 6 months for small businesses and not-for-profit groups
Seek Advice on Deferring Tax Payments
According to the Australian Taxation Office (ATO), they can grant small business owners a deferral of certain tax obligations if COVID-19 has severely affected their business. Get in touch with the ATO or talk to a tax professional to determine your best option. If you choose to defer your payments, however, it might affect your eligibility for other stimulus packages so seek advice from a professional first.
Clean Up Your Books
Eligibility to government stimulus has seen the subject of compliance rise to the surface, with certain eligibility criteria around BAS and other lodgments needing to have been completed and lodged. Never has compliance been more important, so make time to do your bookkeeping spring cleaning. Now is a better time to do so instead of rushing during the extended tax season.
- Gather all your paperwork. If you are using bookkeeping software, you might have completed this step. On the other hand, if you are using hardbound ledgers, organise your bank statements, receipts, bills, invoices, and other documents.
- Manage your transactions. Reconcile your credit card and bank statements to make sure they match your actual. Create (or recreate) missing transactions to ensure all the records match.
- Check your inventory. Verify your inventory levels. Does your actual inventory match your records?
- Analyse your financial statements. Once you’ve organised your books, create the following primary financial statements: cash flow statement, profit and loss statement and balance sheet. Go through these records (with your accountant) to spot red flags.
Check Your Insurance Coverage
Some small business owners carry business interruption insurance, either as a part of an overall package policy or part of a stand-alone policy. Depending on the type of policy you hold, your business might have coverage for some types of losses. There is, however, a good chance that your coverage might be limited or contain exclusions including specific exclusions for natural disasters and pandemics.
No two policies are the same however; the wording can set one policy apart from the rest. Check the wording of your policy, particularly its limitations and exclusions. Review your policy and talk to your insurance agent to learn more about your insurance coverage.
If your business doesn’t have insurance coverage in place, purchasing one today is inadvisable. Insurance companies often do not cover losses for a crisis that is currently happening. Once the pandemic ends, you may look at business insurance for the future.
Talk to Your Stakeholders
Communicate with your stakeholders and financiers regularly during the pandemic-driven downturn; you may be surprised at their understanding and willingness to help. If you have staff, they must also be briefed on your plans and how it will impact them.
Remind your debtors to try and settle any overdue payments, too. Consider their current state first, then determine the best way to negotiate. It will improve your chances for a better outcome.
You may also talk to your creditors about which payments you can defer. Review your trading terms to ensure you have a deposit for new orders, or you can obtain upfront payments (if possible).
Lastly, keep customers updated about your business and its services. For example, if your business is affected by COVID-19 restrictions, let your customers know and inform them what this could mean for them. Check the latest advice from the Australian Competition and Consumer Commission (ACCC) on how to manage delays, cancellations and suspensions of products and services concerning your customer obligations.
Re-Do Your Budgets with New Assumptions
Whilst the economic landscape remains volatile and uncertain, now is not the time to throw out the budget completely. The assumptions you used to have about your business pre-COVID-19 will likely not apply now; but sensible short-term forecasting remains a critical tool. List down the possible effects of the pandemic on your business and re-do your budget. Include a range of worst-case scenarios, such as suppliers unable to provide key items for a month or your sales dropping in three months.
Mind Your Budget — Cut the Unnecessary Costs ;
During this uncertain time, it’s important to understand where your finances stand; cost-cutting can help you save more money. Cancel non-critical subscriptions, minimise non-essential spending and travel and pause projects you can put on hold for later.
If your small business has been aggressively paying off debt, switch to paying off the monthly minimum to conserve cash. If you are outrunning your revenue and cannot think of ways to trim your costs, seek a financial consultant’s help for cost-cutting ideas.
If you seek a clearer view of your finances or wish to know when it’s time to cut expenses or not, work with a bookkeeper online. They’ll send you monthly financial statements, do your books and offer ways to manage your accounting.
Evaluate Your Cash Situation and Make a Plan
Take a good look at your current monetary situation and plan how you can use your capital. Is it enough? Do you have extra? If you feel that you won’t have enough funds to meet your business’s demands, move your number by reducing costs, as well as employing the following tactics:
- Increase your revenue. Apart from reducing your costs, you can boost your revenue by liquidating old and surplus inventory, as well as exploring new revenue-generating strategies. The pandemic gives you more time to test out new ideas. If you find that one technique is working and adds value to your business, scale and optimise it.
- Reduce discretionary spending. Cut discretionary expenses to eliminate waste. Consider what is superfluous and necessary for your business. For example, while free parking is a nice perk for the employees, it can be costly. Plus, not everyone is going to work due to the stay-at-home orders. You might as well cut the parking fee costs and invest it in something more valuable, such as health insurance.
Forecast Cash Flow for Different Financial Plans
Cash flow is the lifeblood of your business. If you fail to manage it, you increase your risk for permanent business closure. As a general rule of thumb, the more cash flow you have, the more secure your business will be.
Analysing your forecast does more than determine if you are spending beyond your means. It can also predict your future cash flow so you can plan and prevent cash shortage.
Use your analysis to create the following financial forecasts:
- Plan A. If things go according to plan, how many sales do you plan on targeting? When do you plan to target them? Will you have extra expenses?
- Plan B. If the situation comes out better than expected, what will your expenses and revenue look like? Should there be no recession following the pandemic, what will your cash flow look like?
- Plan C. Imagine the worst-case scenario: what if the pandemic lasts longer than expected? How will this impact your cash flow?
Work with a Skilled Accountant
Accountants do more than crunch numbers or advise you on taxes. They are also incredible financial planners who can come up with cash flow forecasts. With an accountant, you will easily identify tax savings and eliminate wasteful spending.
If you don’t have a full-time accountant, work with a freelancer, so you’re sure that you’re doing everything by the book. If you can afford a full-time accountant, it would be easier on your mental state, as you’ll know someone is taking care of your financial planning.
Your Finance Department can help you with your bookkeeping needs. We work with accounting qualified financial advisors to ensure your finances are on track despite the pandemic. Plus, we predominantly work remotely, so we deliver our solutions online and ASAP. Learn more by talking to an advisor today.
