By Jane Purnell
For many businesses the events of 2019 and 2020, including drought, fires, floods, COVID-19 and market fluctuations may result in a sudden fall in demand for products or services, labour shortages and supply disruptions. In short, these unknown times will be a shock to many businesses and place their immediate future in serious jeopardy.
As part of a comprehensive risk management strategy, there is a range of actions you should consider taking now to prepare your business. To help place it in the best possible position to not only navigate through the current crisis but also to be better prepared to take advantage of the recovery.
- Bring Financial statements up to date
To make the best possible decisions under challenging environments, you will need access to the most up-to-date information on your business and your finances. Work with your Accountant or Adviser to make sure all your accounts and financial statements are up to date.
- List your Impacts
Talk with staff, suppliers and even customers on what there impacts maybe and work on how they may affect your business. Think of areas such as:
- Finance- What reserves has your company got?
- Supply chain– Where are your products coming from, and how are they affected?
- Staff– What movement restrictions do they have, are they able to work from home, are they high risk?
- Sales– How do you sell your product or services, and how is it affected?
Once you know what your impacts could/ are, then you can look at possible strategies to mitigate those impacts.
- Preform a financial health check
Knowledge of the financial health of your business is fundamental to assist in deciding what you can and should do now to place your business in the best possible position to navigate through the crisis.
Working with your Accountant reviewing the financial statements and current performance can be invaluable. Additionally, look at reviewing other areas such as structure and succession planning to be better prepared for the long-term direction.
- Re-do your budgets
The assumptions you may have used to produce your budget are most likely no longer relevant because of the crisis. When working with your Accountant or Adviser, take the list of possible impacts you have developed and re-do your budgets. Include a range of possibilities previously unthinkable scenarios, such as a 50% to 80% decline in sales over three to six months, or a supplier is unable to supply you an essential item for six weeks.
It’s essential to carefully consider how each of those scenarios impacts your cash flow.
- Act now to improve cash flow
After re-doing your budgets and determining the financial health of your business, including your cash reserves, you are likely to find your business will struggle with cash flow in the near future. You must, therefore, act now to improve cash flows.
Look at areas such:
- Stock management- take steps to sell stock that won’t last 3 to 6 months and promote those items, reduce stock orders of things that have been determined as low demand and increase high demand items.
- Debtors management- contact debtors and work to get invoices paid faster or create payment plans with one that may be experiencing cash flow difficulties. Invoice items without delay and encourage items or services to be paid at the point of purchase or with deposit. Review your sales contracts and terms to ensure they will protect you in the best possible way.
- Creditor management- communicate with your creditors, if you have payment issues, let them know and arrange payment plans, check your credit terms and work to cancel any unnecessary orders as soon as possible. Your Accountant can discuss payment plans with the ATO.
- Spending- cut any unnecessary expenditure, such as advertising or subscriptions. Look at ways to reduce contractor hours and services, implementing recruitment freeze, or reducing staff hours. Reduce your drawings from the business.
Holzworth Partners as Accountants, Lawyers and Advisers can help you work through all these areas and prepare an action plan for your business. Call us on 1300 009 888 to speak with a business risk specialist today. You can also email email@example.com.
Contact Lifeline 13 11 14 for support if you need someone to talk to during these stressful times.