COVID-19 – Survival planning for small businesses

The economic impact of COVID-19 in Australia has accelerated and there is no question that we now face very difficult days for small to medium sized businesses.  The challenge for smaller businesses will be greater because they typically don’t have balance sheet strength to survive shocks to the system.

The effect on business of such a rapidly moving virus is likely to start with a squeeze on liquidity.  This was the pattern that played out in 2008 when the GFC happened.  Everyone will want to be paid on time, even though income is falling.  Asset sale transactions will freeze because of the uncertainty.  The GFC taught us that whilst the liquidity freeze will be temporary, if your business doesn’t have enough cash to survive the hiatus, then it will fail.

Now is the time to take action to protect your balance sheet and we recommend that business owners consider the following seven measures:

1. Consider asking your financier for a repayment holiday on your debt facilities or at least converting the facilities to be interest only for the next 6 months;
2. Delay non essential capital expenditure until you have a better understanding of how your business will cope with the volatility;
3. If you are falling behind on paying your PAYG and GST liabilities, remember to keep all BAS lodgements up to date to help avoid personal liability;
4. If you fall behind on your paying your superannuation liabilities, remember to lodge your SGC statements with the ATO to help avoid personal liability;
5. Start modelling various scenarios of employee cost reduction to understand how you can quickly reduce payroll costs if necessary;
6. Conduct scenario planning for various supply chain interruptions and understand how you would react;
7. If you start to have difficulty making payments on time, get safe harbour advice from a qualified insolvency practitioner that will help protect you from an insolvent trading law suit.

The mistake that most small businesses make is that they fail to consider these initiatives until it is too late.  Remember, protection cannot be obtained in hindsight.

Please contact us to discuss how we guide you through this period of uncertainty.