Steps you can take to help your business survive.

The coronavirus will cause huge pain for business, with possible closures enforced by the government for many and for others, significant drops in sales. Many businesses may not survive, shattering lives and creating large ripple effects across the community.

To try and stop this happening to your business, a six step survival guide with steps you can take to help your business and give it the best chance of survival is outlined below.

Step 1 – Work with key suppliers, landlords and banks with your business plan

The support of key suppliers, landlords and banks will be critical for many businesses. If you are now not going to be able to meet obligations, it’s important that you engage with them as soon as possible and outline your 6 to 12 month plan. You may be able to negotiate rent reductions or a rent-free period or a freeze on loan repayments for several months.

The number of businesses approaching banks for a freeze on repayments will be significant. To give yourself the best chance, create a business plan with cashflow forecasts that show how you will be able to make repayments after a certain timeframe (eg. 6 months). This should provide confidence to the bank that you will be able to pay your debts and return to being a profitable customer. The banks will not want to lose long term profitable customers so demonstrate as best you can that you will be profitable for them.

Step 2 – Deal with and plan for tax and government assistance

Many businesses will put off paying off GST and payg withholding tax on wages (payg) over the next few months, however this can lead to significant problems. After the coronavirus has passed, for many businesses that are still standing ATO debt may create significant cashflow problems. It’s important that you still put aside a percentage of sales to GST and put aside payg taking into account the ATO credit for up to $25k. Your approach may be something like;

  1. Put aside funds for GST at very regular intervals.

Do this at least each week, so that you are taking care of GST as you go. For many businesses this will be approximately 5% – 8% of gross sales revenue for the full GST amount. To assess the percentage for your business, review your last three or four BAS’s and calculate the net GST paid as a percentage of gross sales.

If you decide you are not going to do this, it’s still a good idea to put aside a reduced percentage for GST each week as you will have to pay the full amount at some stage. The ATO may be more lenient with payment plans but eventually the GST needs to be paid. If you can at least put aside 50% of the full amount which will often be between 2.5% and 4% of gross sales, this will reduce your final payment plan amount by 50% and make survival easier in the long run.

  1. Stay on top of payg withholding tax on wages

Factor in the payg 50% credit for up to $25,000 in the March and June 2020 BAS’s into your cashflow plans and still put aside the remaining level of payg whenever you pay wages. If you can’t afford to put aside the final payg amount when you pay wages, it’s highly likely that you can’t afford the staff and you need to make adjustments now, rather than wait for an ATO debt that sinks your business.

  1. Renegotiate existing payment plans with the ATO.

The ATO are now likely to be more lenient with renegotiating existing payment plans, so that you can pay a lesser amount and reduce the cashflow burden. Do this as soon as possible to minimise cashflow impacts straight away.

  1. Ensure you take advantage of government assistance

Many business owners may miss out on government assistance because of poor planning and lack of awareness. Make sure you are up to date and talk with your accountant about what you can do, such as ensuring you pay yourself a wage where appropriate and claim the 50% rebate on payg that relates to your wage.

New assistance packages will be released by state governments as well as the federal government, so keep up to date with what’s available.

Step 3 – Create a cashflow forecast to clarify your likely situation

A lack of clarity about future cashflow can cause many businesses not to take actions that are necessary for survival. Make sure you create a cashflow forecast so you know what you are likely to be dealing with and what decisions are best to make with regard to ongoing costs.

A cashflow forecast can be a simple projection of what is likely to come in each week and what costs you are going to have to pay each week.

Once you have clarity about likely cashflow, you can then make plans to cover any shortfall if possible and you’ll be better placed to negotiate with suppliers, the bank and the landlord. You will also be better placed to make decisions about staffing levels and hopefully retain as many staff as possible.

Step 4 – Work with debtors to ensure your cashflow is not unnecessarily impeded

Many businesses may struggle because customers don’t pay your outstanding invoices. If you sell to customers on account or through invoices that are due after the invoice issue date, it’s important to maintain contact with these customers so that they know that you need to be paid and any necessary payment arrangement can be put in place.

Step 5 – Use funds in your ‘Profit’, ‘reserve’ or ‘vault’ bank accounts wisely

A rush to use funds in your ‘profit’, ‘reserve’ or ‘vault’ bank accounts can be tempting, but ensure you don’t exhaust these funds without considering what you are going to need over the next several months. Factor in the use of these funds into your cashflow forecasts and try to ensure these funds can be used over as long a period as possible, so that these funds provide the greatest chance of long-term survival.

Step 6 – Speak to experts and get help early

Failure to get expert advice can lead to problems arising that needn’t have arisen in the first place, whilst insolvency experts are going to be rushed off their feet. If you are unsure of what to do, get in early and speak to an expert now or speak to your accountant for a referral or an initial discussion.

Tumultuous times call for considered, rational actions

There’s no doubt that many businesses are going to be hammered and the financial and emotional toll will be huge. If you can plan as well as possible, make do with what you have and hopefully keep staff on as long as possible so that they can also be better placed financially, it will be all for the good, so take care, ensure your decisions are well-thought-out and see if you can ride this out. All the best.

 

 

 

ABN 78 624 606295  Liability limited by a scheme approved under professional standards legislation