Tips For Small Business To Prepare For COVID-19
As we are starting to experience, COVID-19 presents a significant threat to business. For many businesses, potential moves by governments to contain the public health risk may result in a sudden fall of staff availability, demand for your products or services, and supply availability.
In short, COVID-19 will be a threat to many businesses and the uncertainty of how long this crisis will last means every business should be undergoing a comprehensive risk management review and strategy to best prepare your business through these uncertain times.
1. Update your financial statements
To be able to make educated decisions you need access to current and relative information on that state of your business finances.
2. List possible impacts
The impacts on a business will most likely be significant in the following areas:
Sales (particularly if you have little to no online presence)
Staff availability (If there is limited scope for your staff to work from home then their ability to work is likely to be threaten. Particularly identify employees with critical skills for your business.)
Supply chain (particularly if you rely on suppliers from badly impacted parts of the world)
Finance (particularly if your cash reserves are low)
Attempt to estimate the financial impact of each and identify possible strategies to mitigate the impact.
3. Re-do your budgets with new assumptions
Your current budget may no longer be relevant due to this crisis. Work with your accountant, take the list of possible impacts you have developed and re do your budget. Carefully consider how each of significant scenario will impact your cash flow.
4. Act now to improve cash flow
After determining the financial health of your business and the impact of this crisis on your budget you are likely to find your business will struggle with cashflow in the near future.
The first step to improving cash flow is to prepare a cashflow forecast and continue to update that forecast regularly as the crisis unfolds. This will give you forewarning of any cash flow problems, so you can act early to address them.
The succeeding tips to improve your cash flow may appear unorthodox and extreme. Some of them we would not recommend in a normal situation, however you may soon be operating in an environment you have never experienced:
Take steps to increase sales, especially of stock that may not last three to six months.
Focus your promotions towards these stock items.
Reduce stock orders, particularly stock you assume will be in low demand during the crisis.
Increase purchases of stock you think will be in high demand during the crisis.
Promote the selling of excess, slow moving and/or obsolete stock
Contact your debtors and ask them to pay you, even if before the due date.
If your debtors are experiencing cash flow difficulties themselves, negotiate periodic payments and make sure they stick to their side of the deal.
Invoice as soon as the product or service is delivered ... don’t delay.
Produce aged debtor reports and follow up with aged debtors.
Reduce debtors by encouraging customers to pay at the point of purchase or to pay early.
Only pay commission to sales staff when payment is received on their sales.
Review your sales contracts to determine under what circumstances customers can cancel orders. If necessary, update those contracts to limit the ability of customers to cancel orders.
Seek payment extensions, even temporarily to your credit terms with suppliers.
Check your supply contracts to determine under what circumstances you can cancel orders if necessary, or at least delay delivery.
Negotiate instalment plans with the tax authorities.
Cut spending you believe unnecessary in a crisis, such as advertising. Delay unnecessary capital expenditure.
Look to reduce staff costs by reviewing staffing arrangements. This could include reducing employee or contractor numbers, reduced working hours or implementing a recruitment freeze. You may need to seek advice as to how to do this.
Reduce your drawings from the business.
Seek finance to fill cash shortfalls
Speak to your lender about introducing or increasing your overdraft facility. Demonstrate that you are on top of your business and understand your cash flow.
Determine your own personal cash position to see if you can inject cash into your business.
Seek out other investors to see if they can inject cash into the business.
Change your business model
Increase your investment in selling online. If you are not selling online, you should seriously consider doing so.
Look at different ways to deliver your product or service to your customers.
Sell or lease out assets you don’t need
Some of these actions may be detrimental to your business in the recovery stage. Keep an eye open for changes in the environment so that you can return to normal business operations quickly.
Cashflow is critical during this cycle and all businesses must be mindful of negative cash flow, but with any downturn there will be opportunities. Now is not the time to tread water with your business. Quite the opposite, now more than ever before there will be profitable opportunities ahead. Business owner need to be prepared for the spike in opportunities as we move through this cycle. Good luck navigating the next few months
Disclaimer: The material and contents provided in this article contains general information and does not take into account your personal objectives, financial situation or needs. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact Peer Wealth on (02) 8014 7608.