As the COVID-19 pandemic matures, the initial economic support introduced by the government will eventually begin to wind down.
Recent reports have hinted that the government will introduce a revamped JobKeeper package later in July, with some businesses in line for additional support. Others have intimated regional support might be the government’s next port of call.
Regardless, there will come a time when government support is no longer available to Australia’s SME business community.
For small businesses, which are less likely to have deep reserves, this means finding ways to become self-sufficient despite the ongoing challenges posed by the once-in-a-lifetime crisis, both economically and logistically.
So, what can small businesses do to ensure their long-term viability when the government turns off the tap?
1. Maximise government support
Firstly, small business owners should use this period to maximise every bit of government support – no matter how large or small it may be – because every dollar counts, particularly during a pandemic. Loop in your accountant, lawyer, or business adviser, find out what you’re still eligible for and claim it.
2. Be across your financials
Next, small business owners should ensure they truly understand the nature of their business’ financial health. What does your profit and loss statement look like? How much has it changed over the last quarter? Where does it sit when compared to the same time last year? By having an innate understanding of their business’ financials, SME owners will be able to quickly identify the unnecessary costs to be stripped out of their operation so that if things do get tighter, they have a handle on the situation.
3. Understand your clients’ fortunes
How will the loss of JobKeeper really impact you? Which customers will be most impacted by lower demand if the economy dips when the tap gets turned off? And how will their struggles impact you, as a supplier? According to Xero research, $115 billion in invoices to small businesses are paid late each year by big businesses. That’s around $52,000 per small business. In order to know how much they’ll be impacted, small business owners should know not just how they’ll be impacted, but how their customers will be too.
4. Build a contingency plan
If things do get harder, do you or your staff understand what will be required to ensure everybody gets through with as little damage as possible? By building a contingency plan, small businesses will be prepared to try to save the jobs of their staff and ensure the survival of the firm. An example would be working out the extent to which staff would need to take a pay cut, or how much working hours would need to be reduced in different scenarios. Fight the tendency to put off bad news and make sure your staff are onboard with what would need to happen if business gets very bad. It’ll make it much easier to handle tough times.
5. Position yourself for spending
However, it should be noted that businesses can’t shrink themselves to greatness. When the time is right, and the economy begins to show signs of improvement, SME owners need to be ready to spend. Those around during the GFC will recall that many of the firms hit hardest were those that chose to totally bunker down and avoid marketing. In order to grow with the rebuilding economy, businesses should know where their cash should be spent when the time is right.
6. Consider funding sources
With the future uncertain, firms should be aware of additional sources of liquidity which they can tap both in moments of need, and when the time comes to hit the accelerator. What options do you have, and which firms can you rely on to help you turn on your own cash flow tap? Do you have any outstanding invoices? If a customer is having a hard time paying, consider invoice financing, which allows you to liquidate up to 85% of your invoices within 24 hours. When the remaining 15% is paid, the invoice financing firm will take a small cut and you’ll have less to worry about.
There’s no doubt that small businesses are doing it tough as a result of COVID-19. But through planning, considering the impacts of the pandemic on others throughout their demand chain, and preparation small business owners can find navigate their way to better days.