Cash flow in the time of COVID-19

In the face of a looming global and domestic recession, the ability for businesses to access cash when needed most has never been more apparent than now.

In mitigating any impacts to cash flow within a business, there are a number of ways business owners can quickly and effectively access liquidity in shoring up balance sheets, including:

  • Access Federal and State Government initiatives – it’s worth researching what is applicable to you and your business. These include the JobKeeper payment, Backing Business Investment (50 per cent of the cost of an eligible asset), apprentices subsidy, Boosting Cash Flow for Employers, PAYG instalments, GST deferrals (six months), and interest-free payment arrangements, which can be separately negotiated
  • Talk to your bank – lending institutions have been very responsive and accommodating during recent months. Having a discussion with your bank manager, where you can explain any business issues or concerns, and collectively work through them, can greatly assist with repositioning a business and have it heading in the right direction. Some alternative banking arrangements could involve increasing an overdraft, a loan “holiday” or refinancing. Prepare a cashflow and make sure you include any deferrals detailed above. The important thing to demonstrate is how you are going to trade out of this situation
  • Reinvigorate a sales strategy – this might include anything from better understanding your business’ contribution margin and reassessing the business model and pricing, to bringing projects forward and offering incentives to secure new business
  • Keep an eye on your costs – it sounds simple and obvious enough, but staying across all overheads and costs effectively keeps a business trading. Areas to monitor closely include premises costs and whether you can request rent waivers and deferrals, staffing needs and the demand for your product or service in the new normal, and consideration to convert fixed costs to variable costs (such as outsourcing, using contractors or building up flexible talent pools)
  • Managing working capital – this can include keeping stock at appropriate levels, dealing with reputable clients who are reliable with paying invoices, ensure your creditors are not paid before you collect from your debtors, and negotiate long-term payment plans where possible.

Ultimately, preparing a cashflow forecast and a budget will be the most effective safeguard against any last-resort measures. At a time of such great uncertainty, a cashflow forecast will provide business owners with a degree of certainty, with a budget affording the ability to follow the path to recovery. Both documents are valuable tools in the good times, but are critical tools in current times. Stay close to them and deliver on the key assumptions that make up the models and you will be a strong chance to survive, recover and ultimately grow your business.