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Now that we’re in April, many businesses will be preparing their March quarter or month-end Business Activity Statement (BAS). For those clients unfamiliar with this document: it’s the way all businesses report their tax position to the ATO.
 
Never has a BAS meant so much. Under the stimulus packages the BAS is the trigger for accessing the Government’s financial assistance to the business. And March is the first full month in which Australia has been affected by the COVID 19 virus.  Because the BAS requires your accounting records to be completed the preparation process gives an opportunity to pullback and review where you are in terms of your business.
 
So this is about some actions you should be taking right now for your business.
 
I previously wrote that we should plan for the worst and hope for the best. Because it’s not possible to manage the external factors, try and focus on the key issues for your business.
 
In this first of a two part email, I want to revisit things you need to be doing now to survive. Our second email will be next week.
 
Today I want to talk about a five step process to survive as a business.
 
Firstly: understand your current position.
 
Using your financial results to March, consider if there has been a change in sales/income/revenue. If you can split revenue into sources this will be helpful as not all activities in your business will be affected in the same way.  Review your cash flow projections on the basis of this analysis. I suggest you begin by doing a 3 month forecast, probably by week is best and then stress test your forecast for best and worst case outcomes. You should plan for everything that may occur. On the cost side this may include sickness within your team or the possibility of a shutdown in the community.
 
In simple terms the questions to ask each week are: 

  • Did we get what we expected to receive; and
  • Can we pay what we have to pay. 

The simple objective is to keep your business afloat.
 
The second step is to focus on delivering what it is you do.
 
There may be activities your business provides that you can no longer do. Try and separate the income and costs by divisions so you can make decisions on your survival plan by deliverable area. Look at your available cash by division, and make choices now about the increase or reduction of services based on the cash available.
 
This is particularly relevant for our not for profit clients funded by grants or donation support. You shouldn’t be considering cross subsiding activities as this may breach your grant agreements. We recommend you contact your grant funding provider(s) to confirm you can use grant funding to pay wages even if you are unable to perform the services due to the impact of COVID 19. It best to get on the front foot with the funding provider.
 
So this step will help you focus on the activities in your business that are worth focusing your time on.
 
An outcome of this review may be the need to reduce costs quickly. It may sound harsh but you need to prioritise the cause over the people, as a way of keeping your business fit enough to see out this crisis. Failure to attend to this will protract the pain of making these hard decisions that will ultimately need to be taken. You won’t achieve everything but doing some of this is far better than doing nothing.
 
One large cost many businesses are concerned with is the rent of their premises. I know the Government are working on strategies to reduce this risk, however if your business is struggling with the rent we recommend contacting the landlord and starting the discussion. In the end game however, if you don’t pay the rent, it’s very unlikely the landlord has a queue of other people waiting to move into your tenancy.
 
Thirdly, consider the Government support available and factor this into your cash flow plan prepared at step 1. The support comes in three parts:

  • The support activated by the March BAS for your business. The cash inflows will reduce your BAS liability, or give a cash refund paid to you when you lodge your activity statements for the next six months. We can help you calculate the level of support you will receive so please give us a call.
  • The support from the Government for your employees. Again this is by expressing your interest on the ATO website and commences if eligible from 30 March, with cash to flow in May.
  • The banking support package which provides a deferral on loan repayments for up to six months and access to three year loans.

There are other supports that you could obtain, particularly from the ATO in deferring tax payments. We understand they are sympathetic to the SME position, however you will need to have a plan before you contact them. Again we have extensive experience in working for clients with the ATO so please call us if you need help.
 
And if the steps to date show your business is going to struggle the Government have provided some changes to the Corporations Law (at this stage for company’s only) that provide increased protections for Directors trading while unable to pay their debts. However, for many businesses, the latest reforms will not be enough on their own – a detailed and documented survival and turnaround plan will still need to be prepared and implemented to assist the company through COVID19 and to protect its directors from insolvent trading liability (and breach of general directors’ duties) during the next six months and beyond. This change is an increase in the statutory threshold for issuing a statutory demand on your business from $ 2k to $ 20k and an extension of time from 21 days to 6 months. However these changes do not remove the ultimate responsibility on a director to assess whether the business is a going concern and able to pay its debts after this extended time frame. Again we are fortunate to have good links with professional providers in the insolvency space so if this is your situation please call us. These experts are willing to have an introductory meeting at no cost to discuss your situation in confidence.
 
The fourth step is to engage with your stakeholders and clients regularly.
 
Communication is a must. In times of crisis people don’t absorb the message due to the mental stress they are under. So the same message needs to be repeated over and over using different words and mediums.
 
And lastly the fifth step is simple. Go back to step 1 each week and revise your thinking. Re check the position, your assumptions and factor in the changes that are occurring quickly, whether that is in demand for your services or products, or in Government assistance or in your cost structure.
 
One of the biggest costs in many businesses is labour. We aren’t practitioners in the employee law space (but we know people who are: so again contact us if you need this support). What we have seen is that this area is a minefield. Every award or contract presents its own challenges so if you are making changes to your workforce please do so correctly and get advice.
 
Managing your banking relationships
 
Picking up on advice from our friends at Quadrant Advisory who work with businesses in their banking relationships, they have the following points for any business to be considering, and funnily enough they feed into the five steps above.
 
The following suggestions come from a recent client discussion with a Big 4 Bank seeking to restructure their loan facility:
 
1. How has cash flow been impacted?
2. What actions are being taken to preserve cash flow?
3. What are the fixed and variable costs required to be supported?
4. What steps have you taken to manage/reduce variable costs?
5. If you need to seek the Bank’s support, what assistance has been requested prior to this support process (i.e. have you sought any support under the Government schemes?) and have you investigated the Federal Government support offerings?
 
Clients need to be able to answer these questions, in writing and in some detail, to allow their banker to process any debt restructuring request quickly. The future still looks murky but scenario planning and financial forecasting must now be at the forefront of your activities as the need to adapt to and understand the new economic environment is paramount. As part of an overall liquidity plan, banks are willing to assist so a well-structured and considered application, answering the above questions, will go a long way to make any application a much smoother and quicker process.
 
To Close 
 
And to those who know that I follow cricket and are looking for some light relief you may enjoy this clip: https://twitter.com/malcolmconn/status/1246206224078491651

Read our full COVID 19 Stimulus and support Measures report.

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