Business plans should be reassessed

Businesses should be reviewing key functions such as funding models and service delivery in determining their longer-term viability in a post COVID-19 recovery environment.

With Victoria in particular having entered Stage Four lockdown, business owners should be utilising any cessation of trading to reassess funding options and consider how they are going to operate and cover expenses when restrictions are lifted and normal trading resumes. A wholesale business, for example, will have stock to sell and, while they could pay wages, there’s a timing issue between selling the stock and receiving the cash.

While the extension of the Federal Government’s JobKeeper program may go some way in keeping businesses afloat, there will be a number of business that will not be eligible for JobKeeper 2.0 but need to change operations and reduce costs to remain viable. For all impacted businesses and owners a formal business-led recovery plan should be a key priority.

The plan should demonstrate funding requirements and strategy options, and can be used to explain the business’ position to the ATO, banks and other lenders, landlords, key suppliers and investors.

Once businesses understand their financial position, an independent business review can be conducted, which includes the review of the business plan. For any businesses showing signs of distress, this may be in the form of an independent Safe Harbour review undertaken by an independent third-party, typically an insolvency expert, that can include assessment of the plan, forecasts (including reasonableness of revenue and costs), possible options, and the value of the business.

Further, the plan may be useful for dealing with going concern requirements for companies subject to audit this year which are likely to be more extensive, with businesses needing to review forecasts diligently. All listed entities have disclosure requirements, which are intended to help manage the expectations of investors and require them to report any material risks. If businesses are prepared to report Coronavirus hasn’t been material, they will then be required to justify it.

The recession has and will lead to a restructure of large sections of the economy with many sectors – particularly those receiving JobKeeper 2.0, like travel and education – having to adjust business models, reassess forecasts and consider business viability. There is likely to be economic uncertainty for be some years before there is a return to pre-COVID operating volumes.

We are here to help. Go to our COVID-19 Resource Centre for further insights to help you and you business during this challenging time.