Australia has seen some significant hardships in recent times. From the lingering drought, to a raging fire season, recent flooding and now the spread of COVID-19, there has been a true test of resilience on the spirits of many.
Now as businesses brace for the impact of the coronavirus the most critical action that can be taken is immediately plan ahead and design practical activities to prepare for a rapid slowdown in operations. That plan will necessitate honest conversations with stakeholders.
Here are some suggestions on how to get started.
1. Cashflow Forecast and Working Capital:
Construct a new rolling 13 week cashflow forecast based on conservative assumptions.
What working capital do you have at your disposal, it might be time to consider an invoice finance facility?
You should be talking to every one of your clients and confirm your ability to continue service to them and seek their commitment to payment of every invoice on time. Perhaps even seek early payment at a discount as a once off. This is the time to review your client database and look to develop marketing to attract new business from old business to broaden the current client base.
You should be talking to your suppliers about their ongoing supply to you and the amounts owing to them. Negotiation of payment of their invoices for a longer period could be possible and alternative channels of supply should be investigated as a contingency.
Businesses with equipment finance in place should be talking to the financiers about a moratorium of payments for a short term of say 3 months (or interest only). Finance companies fear having to liquidate assets under contract as the returns are often at a loss and showing faith to customers can pay big dividends to them when the client comes back to them in the future.
Depending on the size of your workforce, a high level conversation about plans to be put in place with the team would be ideal. You will be relying on the team to deliver through some tight times. In small business, the team sees and feels when things are going wrong and they may become fearful for their jobs. Leave without pay may be appropriate so too may be working at 50% capacity.
6. Tax Office:
The tax office is open to discuss proposals for repayment of tax debt and has recently provided extended periods for lodgements due to the recent fires in certain regions and would likely be sympathetic to requests. The tax office may require you to produce financial statements and have an understanding of what you can afford to pay if you need instalment payments to be agreed.
You may need to approach your bank about your financial situation at some point particularly if you consider an extension of lending.
There will be nuance to each of the above conversations however the best result for you is to receive payments when due and extend payments to be made to you in the short term. There is likely to be a mixture of results which you input into your cashflow forecast.
In the longer term, new clients, different supply chains and new sources of working capital may turn disruption into opportunity.
These conditions are when a turnaround strategy and/or safe harbour protection are critical, advice from a specialist is recommended.
Should you be interested in how your business shapes up right now, our partners at 888x have developed an obligation free Business Review of financial and non-financial data which takes 30 minutes to complete and you will receive a comprehensive report with metrics and dashboard performance ratings with commentary.
To complete your Business Review today, visit: www.888x.com.au/bhc/ or reach out to .
Alternatively, if you would like to chat about working capital management within your business, get in touch with ScotPac today.