As majority would be aware, the government has announced the proposed new billion-dollar plan to launch the Business stimulus package as a result of the coronavirus. The question I’m sure all SME business owners are wanting to know is HOW and WHEN this will occur as we are already facing a series of business issues from external impacts of the bushfires, drought and retail downturn.
A few ideas thought would be worthwhile to share around from a financial and cashflow perspective are:
- REVIEW OF YOUR GROUP STRUCTURES
Some SMEs have created multiple business and revenue streams for growth and diversity purposes. However, during the financially tough times, some of these business units may not be performing, which could result in the move to voluntary administration or liquidation.
- It would be advisable to review your existing group structures to ensure there is a game plan to protect other existing businesses from creditors if one of these business units are required to be wound up or restructured.
- REVIEW OF YOUR CASHFLOW POSITION
Many SMEs have only limited cashflow sitting in their business due to the business or personal commitments
- Build up at least three months’ worth of cash flow to support the business, should sales decrease or a slowdown in debtor’s payments occurs.
- Consider reducing your personal spending or restructure your salary packages during these tough times.
- Contingency plans should also be considered for staff/employees. Perhaps it could be reducing some of their hours gradually rather than dismissing half of the team at once. The Fair Work Act does not have specific rules for the CV situation. If an employee is impacted and needs to be isolated and cannot work from home effectively, then the time will generally be taken as annual leave, sick leave or unpaid leave.
- REVALUE THE EXISTING PROPERTY AND CASH OUT FOR CONTINGENCY PURPOSES
The Sydney property market has picked up again since late last year and I have witnessed some areas increasing by 10-15% in value over the last 6 months.
- Perhaps speak to your Bank or refinance with another Bank to obtain the cash out as part of the contingency plan. These days some lenders may be able to offer the cash out without asking for the purpose of the funding, while other banks may want to know the cash out the purpose and hence would only approve if they can see a legitimate reason.
- APPLYING FOR A LINE OF CREDIT OR OTHER CREDIT FACILITY
For the SME owners without any equity in the property or any form of security, it would be difficult to obtain a Bank loan.
- Seeking an unsecured LOC for smaller lenders could be an option. The beauty of the LOC is interest is only payable on usage.
A few lenders are currently offering unsecured LOC of $100k and under with a small application fee. However, they would normally assess the application based on the cashflow over the last 6 months so it would be advisable to apply now if your cashflow is still running at a reasonable size. On the other side, there are lenders offering other funding facilities like invoicing finance for up $500k plus etc. This would be great for B2B industries like Wholesale/Distribution, Manufacturing and Business Services with a significant volume in Debtors and Receivables.
- REVIEW OF THE RISK MANAGEMENT POLICIES
The wheel could stop spinning if the Owner or Keyman is not available due to illness.
- SME owners should review their existing risk management policy – i.e. Key Man Insurance, Business expenses or Business interruption etc. to protect their business and workplace.
- It is essential to ensure the policy is insured accurately and up to date.
It is going to be a difficult time for many SME’s. However, if Businesses can cruise through these threats, it could lead to tremendous opportunities as we all know that more opportunities can be found in volatile times rather than normal times. Clients and Suppliers would be open to change if there are better or viable options or opportunities like key staff leaving a competitor or rival businesses losing a market share etc.
A Business is like a roller coaster. Therefore, it is critical to have a sound business plan to ride out the current turbulence and move into the next growth phase. Should you require expert advice to review the above issues – whether Business Protection, Capital Sourcing Plan or Risk Management strategies, feel free to give us a call on 02 9299 4520 to discuss further.