It’s little surprise that small businesses across the country are taking a hit from the Covid-19 crisis.
As the crisis will likely to go on for a while, the authorities are encouraging people to stay home. While some businesses are open to having their workers operate remotely, others cannot.
Small businesses will also be negatively impacted when people go out less and turn to alternate means of shopping.
To brace themselves for the effects of Covid-19, small businesses will need to act decisively and prepare to take advantage of the recovery.
Take the following advice from CPA Australia, one of the world’s largest accounting bodies:
1. Keep informed
Stay abreast of all official information on Covid-19 and any directions public health authorities may issue.
2. Update your financial statements
To maintain good decision-making in a difficult environment, you need access to the newest information on your financial state.
3. List possible impacts on your business
Estimate the financial impact the Covid-19 crisis is having on your business and develop mitigation strategies. Discuss with your staff, key suppliers and key customers the likely impact of Covid-19 on your business.
Businesses will likely be impacted in the following areas:
- Sales: Particularly if you have little to no online presence.
- Staff availability: With people’s movements restricted, their ability to work will be curtailed, particularly if they’re unable to work from home.
- Supply chain: Particularly if you rely on suppliers from badly impacted parts of the world.
- Finance: Particularly if your cash reserves are low.
If your business is already impacted, start by listing what those impacts are. If you are not impacted yet, you should still be able to make some informed projections.
In listing those possible impacts, attempt to quantify what those impacts will have on your business and identify possible strategies to mitigate them.
4. Perform a financial health check on your business
Knowing your business’ financial health assists you in deciding what you can and should do now to better your business’ position through the crisis.
Much information on the business’ financial health and performance can be gained by analysing your financial statements through financial ratios.
5. Re-do your budgets with new assumptions
The assumptions used to produce your budget are most likely irrelevant because of the crisis. Working with your accountant, take the list of possible impacts of Covid-19 and re-do your budgets.
Include a range of possible previously unthinkable scenarios, such as a 50-80% decline in sales over three to six months, or a supplier being unable to supply you a key item for six weeks.
Carefully consider how each of those scenarios impacts your cash flow.
6. Act now to improve cash flow
Your business will likely struggle with cash flow in the near future. Therefore, act now to improve cash flows.
The first step is to prepare a cash flow forecast, and update that forecast throughout the crisis, possibly weekly. This will give you forewarning of any cash flow problems so you can act early to address them.
7. Increase online sales
To remain viable with less customers about, small businesses will need to begin selling online or increase how much they sell online.
It is important to investigate different online platforms to see which is suited for your business needs.
Review how best to deliver your products to the customer. Service suppliers should investigate digital solutions to the service delivery to reduce the need for physical interaction. Consequently, choose to close some of your physical locations.
For guidance on how to increase online sales please click here
8. Put in place a contingency plan
9. Talk to key suppliers
Talk to your key suppliers about their delivery reliability during the crisis. Consider their ability to produce the inputs you need, the transportation of the products to you and the agreed costs/prices.
Suppliers might be hit by travel restrictions, so consider setting up alternative suppliers, including local suppliers even if pricier. Source them now and negotiate prices early.
10. Identify employees with critical skills for your business and make sure they can continue working or can be replaced
Consider which of your employees are irreplaceable and which business functions need to keep operating regardless.
Look for others who can learn the task. Outsourcing may prove handy.
Where such employees can work from home, make sure they take the equipment required with them every night in case you have to close your premises at short notice.
Develop a special roster so that critical staff are always available to keep essential business systems and processes running.
11. Do a reality check on your business
Use the crisis as an opportunity to reflect on your business, how it was being run, how you would like it to run post-crisis and whether it is still right for you.
Can you foresee any possible emerging opportunities for your business following the crisis?
12. If you find yourself in financial difficulty, seek professional advice early
During the crisis, regularly ask:
- Is your business able to pay your creditors, your tax obligations, employment obligations and make loan repayments as they become due?
- Do you have adequate financial reserves to cover debts due and payable in the next few months?
If you answer no to these questions, you should immediately seek professional advice, as your company may be insolvent or near insolvent.
If your small business is in financial difficulty, be very wary of anyone cold-calling you, promising financial salvation.
Such people may advise you to deliberately liquidate your company to avoid paying debts and continue your business through a new company. This is unethical and may even be illegal.
If you are approached by anyone cold calling you offering such advice, speak to your accountant or lawyer.