Strategies for businesses to deal with COVID-19
There will be no simple universal solutions to assist businesses in coping with the financial effects of the strategies recommended by the Government to prevent the widespread expansion of the COVID-19 virus.
The obvious implication of these strategies to businesses is a significant reduction in cash flow. This is as a result of:
- customers not coming in the door;
- debtors not paying in a timely fashion;
- stock not being able to be purchased; and
- fixed costs that cannot be arrested quickly.
Should the effects of reduced cash flow continue too long, without adequate strategies to counter the challenges, issues of insolvency will arise.
This advice provides broad strategies for businesses to implement in order to avoid the incidence of insolvency.
Businesses must try to do this by working proactively with key stakeholders (banks, tax department/government, landlords, suppliers and employees) and negotiate respite from contractual conditions sufficient to preserve cash long enough to wait out the period of crisis.
Our top tips for business owners to maximise their chances of remaining in business are:
- conduct a deep think into the multiple implications of the so-called social isolation strategies on the cash flows of the business (involve your accountant, lawyer, business adviser, best friend, business associates or employees in the discussions; you just don’t know who will come up with the best idea);
- anticipating the implications, scenario test innovative strategies for how your business can continue to trade, and at what cost;
- constantly keep abreast of the ever-evolving Government and Bank announcements of assistance packages that will help with cash flow;
- with an understanding of the cost of ongoing trade, negotiate with all the key stakeholders to the business and develop plans of working together to ride out the storm;
- innovative strategies needed to address all the drivers of business cash flow - sales strategies, cost of goods sold improvements and overhead reductions;
- we know that none of the negotiations will be easy, but they are necessary; and
- when effective innovative strategies are identified and stakeholder support secured, the businesses must get to work urgently to implement the plan of action and continually revise and tinker with it to make it work.
We are seeing wonderful examples of business owners thinking innovatively of ways to reach their target clients and continue to service their needs or making tough decisions to reduce their business offerings to what can be afforded in the current times, so we know innovation can occur. It may be that trading on a reduced scale cannot be afforded, if that is not possible, explore placing the business in care and maintenance mode before finally having to consider if a formal external administration is necessary.
Our final tip is to remember that we are a caring community in South Australia and if there are opportunities to support each other through these challenging times, please take up the opportunity.