I have noticed a quote doing the rounds in various articles over the last few months, “Never let a serious crisis go to waste.” The quote has been credited to Rahm Emmanuel, while Chief of Staff to Barack Obama, proposing how to respond positively to the Financial Crisis of 2008.
Can you apply that thinking to your business? This crisis has caused a lot of pain to a lot of business owners. Don’t let that go to waste.
As lockdown restrictions are lifting, and life begins to return to “normal” you need to plan for your business restart. It is not going to be easy. That is why good forecasting and monitoring processes will be the crutches you need to help you nurse your business back to full health.
Government packages such as JobKeeper and the cashflow boost have given businesses a lifeline and some crucial breathing space. These policies, although far from perfect, have patched together our economy, together with other measures such as support from banks, landlords and creditors. However, we are all too aware that these measures have a use-by date. Businesses need to put the work in now, to ensure that they can survive after the machines are turned off.
You get your summer body in winter. Use this time to plan ahead and create a framework, that will give you the best possible chance to get back on top.
Having worked with clients for many years setting and resetting budget projections, I know how difficult it is to predict future income for many businesses. Even in normal market and economic conditions, it is tough.
Where you will likely get a better return on your efforts is by first focusing on your costs and cashflow and then setting income targets and action plans. Follow these ten steps to set and use your income and cashflow forecasts: –
- Review all your costs and divide them between fixed and variable.
- Work out the method to calculate variable costs – e.g. percentage of sales.
- Test the assumptions and understandings that are driving your budget model against real data from the past, (only where that past data is still relevant for this new business environment!).
- Keep your bookkeeping up to date. Make sure you understand your profit and loss and balance sheet reports.
- Calculate your daily / weekly breakeven point, both for now and from 1 October, when JobKeeper, rent and loan breaks are all likely to end.
- Set your targets for the income needed to cover, firstly your breakeven point, and secondly your target profit margin.
- Cash is king – you need to know your cashflow breakeven target too – but don’t only use cash as your monitor as you will end up running up debts to the ATO and others.
- Put an action plan together for what you need to do to achieve that target income, (e.g. marketing, securing orders with customers).
- Review your actual results to your targets (daily if possible) and to your cashflow forecasts (weekly or monthly).
- Address any issues that arise – there may be errors in the forecast, or there may be issues in the business. Any errors or issues that are shown up need to be tackled immediately.
There are a number of great business planning tools available for free on various government websites. A good place to start is with the Small Business Development Corporation.
Your thorough understanding of your income and cash position will allow you to have meaningful discussions with your landlord, bank and creditors, and to agree to a realistic plan to get back on track.
Heather Moore, Associate Director, NKH Business Advisors & Accountants
