Cash management is the most critical issue for businesses right now.

What is consistent across the board – regardless of industry, size, or the extent of the impact from COVID-19 – is the critical refocus on the importance of cash flow and the general management and preservation of your cash.

Business lifelines, like JobKeeper and other tax incentives and relief packages, are temporary, targeted and are being progressively phased out. Businesses need to do the work now to ensure they are prepared for the next stage and can emerge out of survival mode ready to grow.

But what this means for each business is different.

Cash is critical to meeting current business “non-negotiables” – such as funding product materials, rent, wages and other operational expenditures. It’s also essential to support future plans – increasing stock levels, taking on more people and pursuing new opportunities.

It’s been 20 years since the last recession, and when times are good we can become complacent about cash flow. We’re being challenged now in a way that many business owners may not have experienced before. However, before you can look outward, you need to look inward.

To prepare for future growth, we need to look at current cost reduction strategies, implement more optimised structures or employee schemes, tap into government incentives, recover overpaid taxes, consider new finance alternatives or undertake new cash generating initiatives.

There are a number of options available for how you can shore up your balance sheets and be successful in a challenging business environment.

Raising funds, reducing costs

If we take anything from the GFC, we know it can take many years, perhaps three to five, before companies are comfortably back at pre-COVID levels. Public equity market raisings saw a four year period before recovery phase and Australian loans to the private sector required 42 months to achieve stability. Therefore, businesses cannot rely on traditional lending alone and must look to alternate avenues for raising funds.

  • Releasing excess levels of cash tied up in working capital can represent the cheapest form of finance available to a business.
  • Assessing the assets and equipment you need to operate your business can bring an immediate injection of cash with a divestment strategy.
  • Reviewing all expenses and creditor agreements can bring down the costs you have for doing business.

Tax incentives and recovery

Both the Federal and State governments released multiple tax measures and incentives specifically focused on combating the impact COVID-19 has had on businesses and the economy. On top of the high profile – and now extended and refined – JobKeeper program, there is also the greatly expanded SME Guarantee Scheme, instant asset write-off threshold increases,  COVID-19-focused government grants and loans, and multiple state and territory support packages.

What you will have noticed is that the Government has rolled out all of their support measures using existing mechanisms. Optimising your R&D investments, tapping into government grants and loans and managing your GST and indirect taxes, like stamp duty, fuel tax credits and payroll tax, can have a significant impact on a company’s cash flow – putting cash back into your business.

R&D

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R&D

Government funding

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Government funding

Alternate employee arrangements

Salaries are typically the highest cost to a business. There may be a temptation when times are hard to look at redundancies as a way to minimise that cost, however in the long term this will make it much harder for your business to rebound and should only be used as a last resort.

There are many other, more innovative ways, you can manage and optimise your workforce – keeping your talent pool and preparing your business to rebound faster when the time is right. Options to consider include reduced days, additional purchased leave, implementing employee share schemes, even reviewing tax efficiencies for how you mobilise your people. Are you right-sized for business survival and also recovery?

Employee share schemes

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Employee share schemes

Fringe benefits tax

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Fringe benefits tax

Mobilising your people

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Mobilising your people

Human capital

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Human capital

Factors affecting financial forecasting

Financial forecasting and reporting is complex at the best of times, and COVID-19 has made it even more difficult to look forward more than a few weeks into the future, let alone months or years.

Financial reporting advisory

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Financial reporting advisory

Financial models

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Financial models

Valuations

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What's next?

Every business has responded to Coronavirus COVID-19 differently. While cash flow is a common theme, we know that the support you need is unique to you and your sector. From restructuring your business to weather future uncertainty to optimising what you already have, we have the right experts to help you navigate the new normal.