Business measures during a global crisis
By Sam Stringer - Director at Murchisons
As we mentioned in our previous article on the government measures available to business, it’s crucial that you have a plan in place on how you are going to deal with this current dilemma, and are ready to make the tough decisions quickly when they are required.
Delaying these tough decisions can have a devastating impact to your business. It is equally important that this planning process begins with a focus on understanding what the core strengths of the business are, to ensure that you don’t end up in a situation where you are implementing various measures that are short term focused that point the business away from its core focus and strengths, to the detriment of the long term success of the business.
In our previous article we outlined a summary of the government measures being offered at this time (call us on 02 9959 5599 for new updates on this), and whilst these measures will help to a certain extent, it is also a good time to look into doing the following:
Perform a frank assessment in order to identify the potential issues for your business and potential points of failure – Do you have staff that could be exposed to the virus through their work? Do you sell products or services to severely affected countries? Do you source products or services from severely affected countries? Is your business heavily reliant on foreign tourists?
Talk to your bank or lender to discuss the deferral of loan repayments - A package has now been announced that will assist small businesses to have their loan repayments deferred for up to 6 months. We would suggest talking with your bank or lender regarding your home loan and other personal loans also.
Talk to your credit card provider to potentially have repayments deferred for a period of time.
Discuss your rent with your landlord - There may be the potential to defer rent payments and negotiate a reduction in rent. We are already seeing businesses negotiating in this area.
Evaluate your supply chain – Understanding your supply chain will allow you to identify vulnerabilities. For example, if you are sourcing products from overseas, you need to work on the assumption that that country may become heavily impacted by the virus at any point in time, so have option B and C ready with suppliers in other areas.
Review your contracts with staff, suppliers, and clients - You will have options here and now is the time to negotiate and review your options in regards to all three. With staff contracts, it is important to review where you stand in the event that you have to make cuts, with suppliers it is a good time to negotiate favourable payment terms and rates, and with clients, you must review pricing. For example, businesses purchasing from overseas will need to review their pricing and update their prices to reflect the recent rapid changes in foreign exchange rates, or risk having their margin reduced considerably. It is also important that you have a policy in place for employees regarding flexible working arrangements and ensuring that your business is ready for this to happen if required and ensure that this is communicated effectively. Your workforce needs to know that their wellbeing is paramount.
Manage your debtors - It is especially important that debtor management be at the top of the priority list. Not only the collection of current debts, but also assessing new work to ensure that you don't become the creditor that gets dragged out or not paid at all. Try to negotiate upfront payment or part payment where possible.
Negotiate with the ATO regarding the deferral of required payments - I stress that it is important to continue to lodge on time. Don't delay lodgement to hold off the liability, the ATO are being lenient with arrangements and allowing interest free deferrals if lodgements are kept up to date.
Directors need to start considering the safe harbour provisions and the steps that need to be taken when a director has reason to suspect their company is approaching insolvency, that is to say, when a company is approaching a state of financial distress and risks being unable to pay its debts as they fall due. If you are concerned about this, you need to discuss this with a specialist in insolvency.
Protect yourselves as directors and shareholders - Have your group structure and the situation with your related party loans reviewed to ensure that you are personally protected as much as possible. It is also a good time to review and update your dividend strategy and timeline. These issues become especially important if you are considering injecting capital into the business to get through this period.
Whilst the ability to defer payments is a great measure and will assist in mitigating immediate cash flow issues, it is going to create a snowball of debt, so it is especially important to look to the future and do some cash flow forecasting and scenario analysis to ensure that you can plan your way through this period and back into normalcy, and also so that you can forecast the impact of best and worst case scenarios and identify things such as if funding is required during the period of impact. As part of this process it will be important to assess the requirements (including funding) for ramping back up to “pre-Coronavirus” trading.
We at Murchisons are here to help, please feel free to call us any time on 02 9959 5599 if you would like to discuss the above and put an action plan in place to get through this period.