Step it up

31774-MLS-Greg Charlwood

How small businesses can come out stronger on the other side of COVID-19.

Australia has not suffered a full-blown recession for almost 30 years, and many small business operators have as a consequence only hazy or no awareness of the potential implications for their business of a prolonged decline in economic activity. The COVID-19 pandemic and resulting restrictions have in a way foreshadowed the implications of a recession for many SMEs, among them significantly increased business stress for small-business operators, an upturn in unemployment, and changes in consumers’ spending patterns and power.

Here are five things small businesses can do to boost their ability to emerge successfully from the COVID-19 lockdown and ensure they are positioned to keep their business going, and to survive in a very different – and potentially even more challenging – environment.

  • Continue to safeguard your employees and customers

Recurring COVID-19 outbreaks are expected, so for the foreseeable future you need to continue to do all you can to safeguard your employees, customers and anyone else who comes into contact with your business. Stay on top of the latest announcements from your state health department and other reliable and trustworthy sources of information.

Encourage staff to maintain the hygiene behaviours we have adopted as a result of the COVID-19 outbreak, and if you have premises, maintain any stepped-up cleaning and maintenance. As the amount of local and interstate travel increases as we emerge from lockdown, ensure that employees who travel for either business or personal reasons minimise their potential virus exposure.

If working from home is going to become a permanent arrangement, now’s also the time to make sure that your staff have the right infrastructure, technology and support to be able to do so. It may also be necessary to set up secure wi-fi networks for staff working remotely, and make sure that you revisit any processes for handling financial transactions to guard against any potential for fraud.

In the two months since the implementation of the COVID-19 restrictions we have seen a pronounced upturn in another kind of virus – the use of malware and attempted cyber-security breaches. Data breaches can have a significant impact on your business’s reputation and viability. Now’s the time to make sure that your data files, and in particular those which contain private information on clients or customers, are protected against security breaches.

  • Invest the time and effort to understand your business and its future

Small-business owners who understand financial statements and use them as a tool to manage their businesses will be in a much better position to emerge from the COVID-19 pandemic and ride out any prolonged downturn.

Investing the time and effort to properly understand your business’s balance sheet will give you a better understanding of the mechanics of what makes your business function. This includes undertaking a line-by-line analysis of all your outgoings and incomings, whether costs are within budget, what’s working well, what needs improvement and so forth. Financial records can also identify problems at an early stage, which can then be rectified before they become much larger issues.

Many small-business people are very busy working in their business, and often find it hard to make the time to work on their business. If you don’t have an external business adviser, now’s a great time to seek out someone who may be able to see issues with your business and potential opportunities you can’t necessarily see for yourself.

  • Continue to scrutinise your ongoing business costs and supply chain

As we emerge from the COVID-19 lockdown and remain in a period of heightened uncertainty, it’s more important than ever to ensure that you scrutinise and understand your ongoing business costs.

Review your existing staffing, finances, spending and cash flow position, and make sure you know where you’re spending money, and if it’s absolutely necessary. Do you need to have so much of your precious cash flow tied up in floorspace, for example, or could you potentially move to smaller premises?

Re-examine your supply chain and whether there are opportunities to negotiate and reduce the baked-in costs of running your business. Maintain open lines of communication with your business banker or non-bank lender, and talk to your suppliers about whether you can get an extension on payments or better terms. Make sure you understand who your major customers are and who their customers are, and check for any stresses on their business, and their ability to pay.

Understand your debtor days and the time it takes for your invoices to be paid. Sluggish cash flow by slow-paying customers is a chronic problem and a primary cause of cash flow interruptions for many small businesses.

Review your existing budget assumptions, and try to forecast the impact of falling levels of business activity – keeping in mind that any recession may have a greater impact on your cashflow, revenue and profit and loss than you’ve ever been used to before. Reassess any capital expenditure plans and weigh carefully the tax deductions for instant asset write-offs against your need for managing shorter term cash flow.

Consider carefully any existing debt and your ability to service that debt, and whether you need a new approach to debt servicing, such as bringing cash flow forward with invoice finance. Remember that anything you can do to increase the holding of cash on your business’s balance sheet now could help insulate your business from the effects of a sustained economic downturn as we emerge from the COVID-19 lockdown.

  • Make the most of ongoing government support

Federal, state and local governments have all implemented support packages for small businesses to combat the effects of the COVID-19 pandemic. If the economy enters recession after the emergence from lockdown these may be extended, or new measures put in place. Work with your accountant, small-business banker or non-bank lender, finance broker, lawyer or business adviser to ensure you’re aware of any changes to these existing support packages, and any new initiatives, and that you maximise the entitlements for your business.

  • Consider alternative forms of finance

The pool of working capital is the most important asset your business has. Ensure you have a strategy for accessing additional capital if you need it. Alternative sources of credit such as invoice finance can release the funds tied up in unpaid invoices, involving a lender who agrees to advance money against outstanding debtor balances. This can take the pressure off when cash flow is tight, and help cover regular expenses such as wages, utilities bills and tax obligations.

SME operators who have alternative finance arrangements in place will be better prepared to navigate what looks set to be a very challenging business environment as we emerge from COVID-19. Use the time now to revisit all aspects of your business and put in place the financing arrangements which will enable you to quickly scale up and take advantage of opportunities and emerge from the lockdown in the best possible shape.

Greg Charlwood, managing director, Australian Invoice Finance

This story first appeared in issue 29 of the Inside Small Business quarterly magazine