The financial decisions facing SMEs post pandemic.
The term “unprecedented” has been bandied about with some abandon since COVID-19 struck, but there can be no doubt the word accurately describes the situation small-business owners are facing today. As restrictions are starting to ease and businesses start to get back to work, it’s time to count the cost of the pandemic and plot a route out to the other side. We spoke to Mark Pizzacalla, partner-in-charge at the business services arm of accountancy and advisory firm BDO Australia, to find out about the challenges facing SMEs, and how to overcome them.
ISB: What should those businesses who are going to be able to reopen be doing to plan for – bearing in mind revenues are likely to be lower than pre-COVID times – in terms of staffing, infrastructure and marketing?
MP: A pandemic doesn’t discriminate – the majority of businesses are feeling the effect and facing new pressures they have never dealt with before. It doesn’t matter if you’re an iconic brand – there will be some sort of impact.
Now is the time for business owners to shift their thinking and start planning for the “restart”.
Most businesses will restart with lower revenue expectations. The critical question is, “how much lower will revenue be and for what timeframe?”
Most likely, staffing levels will need to be reviewed and, depending on the business, some level of “right sizing” will need to occur. By right sizing, I mean looking at how many staff are viable for the reduced revenue that’s expected. The human element means this aspect of planning can be quite difficult for most business owners – especially where you have long-term and loyal staff members.
But unfortunately, lower revenues will mean – by definition – that you cannot carry the same costs you did previously. Ultimately, something will have to give.
Overheads, and in particular rent, will need to be renegotiated with landlords using the mandatory code of conduct as a guide to help achieve a commercial resolution.
In relation to marketing, there will always be those who believe this expenditure should be reined in when times are tough. However, and equally, there are also those who believe marketing should be increased during this period for the same reason.
Business owners need to start thinking seriously about what they’re going to do differently when they restart, because things won’t look the same for a long time, and may never look exactly the same again.
It’s crucial to get a plan together now – don’t start thinking about it when it’s time to reopen.
ISB: How can those businesses that are going to have to stay closed for a while protect their cashflow without revenue coming into the business?
MP: For businesses in hibernation, the main game at the moment is all about cash preservation. This may take many forms including rent waivers or deferrals, human resources and analysis of employee requirements or reviewing profit/loss expense items to determine where the razor can be used to maximum effect with as little impact as possible on the business.
Right now, business owners should be looking for any expenditure they can delay.
Use the hibernation period effectively by doing a review and re-negotiation of ongoing expenses such as utilities, insurances, interest rates, just to mention a few. You can reap some real long-term benefits by reviewing these costs, comparing suppliers, and ensuring that you have the best deal for your business going forward.
ISB: How effective have the government’s stimulus measures been in helping businesses survive?
MP: There’s little doubt that without the government’s stimulus measures there would be many businesses quite literally out of business.
The JobKeeper subsidy package, in particular, has provided a lifeline to many businesses that were going to otherwise close their doors permanently.
ISB: With those stimulus measures, such as JobKeeper and payroll tax relief, being introduced for a fixed period only, what do small-business owners need to do now to enable them to be able to stand on their own two feet once the stimulus ends?
MP: The JobKeeper initiative has been akin to a blood transfusion, but like all transfusions, it’s only temporary.
Business owners must use this hibernation period wisely, planning for the restart so that they can get off the blocks quickly once they’re allowed to reopen.
There will be terrific opportunities on the other side of the pandemic. Business owners need to be planning and preparing now to get themselves in the best possible position to take advantage of these opportunities.
This story first appeared in issue 29 of the Inside Small Business quarterly magazine