In addition to the Federal Government’s stimulus package, there are other ways small businesses can create a healthy cash flow forecast during these difficult times.

A sizeable portion of Australia’s gross domestic profit1 relies on the small business sector, as does more than 44% of the country’s workforce2. As such, the COVID-19 coronavirus impact on the cash flow of small businesses affects a significant number of hardworking Australians. Now, small business owners are forced to take a closer look at their running costs and cash flow to assess the ongoing viability of their operations.

 

Here are some practical tips to help small and medium-sized businesses alleviate cash flow pressure in times of financial difficulty.

Understand your current financial situation

Before you can understand where short-term changes can be made, you’ll need a thorough assessment of your business as it stands right now. This financial analysis should gather the most up-to-date information on key parts of your business, including:

  • Year-on-year and month-on-month revenue figures and a cash flow forecast
  • Liquidity ratios (the ratio that captures how much of your assets can quickly be converted into cash if needed3)
  • A review of turnover projections, based on new business trends as a result of COVID-19
  • An accurate assessment of all expenses and outgoings
  • A full and detailed picture of your current debt.

You can conduct your own analysis if you’re confident enough4 or you can engage a business adviser or accountant to do it for you.

Consider your industry context

To determine how well your small business is performing and will continue to perform in future, it’s important to also consider the wider context of the industry and general climate.

Some industries have been hit harder than others as a result of the COVID-19 crisis and are likely to suffer further difficulties as a result of ongoing social distancing measures.

Physical businesses will have different costs to consider than, for example, an online service business that operates without needing a leasehold or the shifting of any stock. Additionally, any business that relies on stock may find it’s subject to interruptions in supply chains, such as manufacturer delays or delivery delays, which may potentially affect its ability to generate revenue.

Cafes and other hospitality businesses don’t really have the option of remote working for their staff and, as a result, may face difficulties with potential restrictions on movement for their employees. These aspects should be factored into forward-facing plans.

Establish a new budget and some cash flow solutions

Once you have a more holistic understanding of where your business stands, you can start to work on solving your most pressing cash flow issues. Remember that cash flow refers to both the total amount of money that comes into your business through sales and the amount that leaves through your expenses – so you’ll need to consider where costs can be cut, as well as revenue generated.

Depending on your lease conditions, you might look at moving your business online rather than renting a physical space to help save on expenses or finding ways to temporarily reduce your staff costs by assessing if you’re eligible for any government subsidy.

If your marketing budget has been impacted, there are also plenty of free online resources5 to help you promote your business through your existing social media accounts and website. Depending on your business, reviewing your online presence and marketing strategy may help you discover an opportunity to pivot how you usually obtain customers.

Seek financial advice and business support

Due to COVID-19, there’s considerable assistance, advice and support available to small businesses struggling to make ends meet. Familiarise yourself with some of the measures the government has introduced as part of the coronavirus stimulus package and consider whether these are relevant to you and your business.

For eligible businesses, there’s a tax-free cash flow boost delivered as a credit in the activity statement system6 that might be helpful, alongside increases to the instant asset write-off thresholds7 and the introduction of the JobKeeper payment8, designed to support the ongoing employment of staff.

As well as support from the Federal Government, individual states and territories have also introduced financial assistance to help businesses affected by coronavirus, so check your relevant state government resources for further information about measures and possible relief you may be eligible for.

Case study: COVID-19 and coffee

To understand this in action, let’s look at the example of a small, family-owned cafe. With fewer than 10 staff and a significant loss of business, they’ll be primarily looking at reducing their outgoings as a result of their financial assessment.

Straightaway they could reduce their supplier orders while there is less demand. They may also consider the government’s support packages for businesses to help them manage staffing levels.

They could investigate new trends to create additional revenue streams, such as having their food delivered to customers in their local area and creating the ability for online orders via their website for customer pickup and takeaway.

They may think about changing their opening hours and menu to capitalise on the changing market of less early morning commuter coffees and more people keen to grab dinner instead.

Alternatively, to avoid food spoilage and still retain some revenue, they could consider selling some of their produce to the public and pivot into a temporary ‘grocery’ front.

Taking control

It’s not an easy time for many small-medium businesses, but the sooner you understand your financial position, the better. Combined with being informed about the support that’s available you can start to plan, so your business is in the best shape it can be during and hopefully after COVID-19.

For help with your business finances, speak to your financial or business adviser. If you don’t have a financial adviser, you can contact us on 131 267 or find an adviser online.


1 Small Business Counts - Small Business in the Australian Economy; Australian Small Business and Family Enterprise Ombudsman
2 Small Business Counts - Small Business in the Australian Economy; Australian Small Business and Family Enterprise Ombudsman
3 Analyse business finances; business.gov.au
4 https://www.business.gov.au/Finance/Accounting/Analyse-business-finances
5 https://www.service.nsw.gov.au/campaign/covid-19-help-small-businesses/general-business-support#free-business-services
6 Support for businesses and employers; Australian Taxation Office
7 Support for businesses and employers; Australian Taxation Office
8 Support for businesses and employers; Australian Taxation Office

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