Small business survival can be challenging at the best of times, but COVID-19 has taken the task of staying afloat to a whole new difficulty level.
Now, as the first set of coronavirus restrictions are being lifted and some SMEs prepare for a return to normality, the pressure is on for business owners to make the right money moves in the coming months.
In particular, they’re searching for ways to maintain a healthy business cashflow, at a time when many companies and consumers feel financially strapped.
Finance expert and MYOB’s head of product, Jo-ann Chung says cashflow management starts with taking a big-picture look at your business operations.
This means figuring out strategies for how to reduce your expenses, pay for essential costs like staff wages and stock, and transform your products or services to re-engage customers who are also struggling.
And it means approaching all those ‘how’ questions in a more realistic manner.
Stuck on the specifics of what to do? To get the ball rolling, we’ve put together some cashflow tips to help your business ride out the worst of the pandemic.
Plan for the next six months
To get a clear view of your cashflow, the first step is building a forecast. This can help you identify ways to make up for lost income and the costs to cut down on.
Given how much uncertainty exists in our economy right now, Chung recommends developing a forecast that looks six months ahead, rather than focusing on the longer term.
So what does a good forecast involve? It comes in three parts:
1. Unpack your expenses:
This includes both fixed and variable costs - the former generally stays the same (e.g. rent, energy bills) while the latter changes depending on how well the business is doing (e.g. staff wages, stock).
Chung says that with fixed expenses, it’s a matter of deducing which ones you can stop, delay or negotiate down for the time being, as some of those costs may no longer be applicable during COVID-19.
For instance, if you’re a physical business that has had to temporarily shut its doors, could you put things like cleaning or photocopier support on hold?
Talk to your supplier about a payment plan if you’re struggling to meet some of those expenses. Or ask them to reduce their pricing over the current period if you feel you aren’t using their products or services to their full potential.
2. Review your income:
Seeing as we’re already a few months into social distancing, you probably have a good idea how much revenue your business has lost due to COVID-19.
So ask yourself: which products or services are selling well? Which aren’t? What might you change about your products or services to help them sell better?
The key is to be creative. “It’s about realigning the value of what it is you’re providing to your customers and thinking about your pricing in line with that,” Chung says.
She gives the example of her daughter’s dance studio, which recognised it could no longer offer classes on-site. So instead it shifted its lessons online and emailed all the students about the change. It also offered a price reduction or discount for those new classes.
Such adjustments, says Chung, “help customers to firstly, still remain engaged with you as a business, and secondly, continue utilising your services but in a way that they can afford.”
3. Be realistic:
Recent research has shown while many businesses aren’t confident in the economy, they feel more optimistic about their own ability to weather the effects of the downturn.
But Chung’s message here is the adage, “don’t count the chickens before they hatch.”
“There is a lot coming through in terms of government stimulus … but I’ve seen a few businesses get caught out by thinking that they qualify for certain things and banking on that already,” she says.
“And then it doesn’t eventuate, which leaves them in a worse position because they’ve potentially made decisions assuming that this money was going to come in.”
Chung argues that it’s important to make decisions based on the knowns, or things within your control, rather than the unknowns. In other words, take a more conservative approach, so your forecast becomes less reliant on external factors.
Broaden your payment horizons
Once you have a plan in place, the next step is ensuring the income you’ve forecasted can be actually realised.
In fact, recent CommBank data found a growing number of Aussies are embracing contactless transactions amid COVID-19, with digital wallet transactions surging by 17% between February and March this year.
“It’s a sign of the times around being able to offer your customers a gamut of payment options in the electronic space, because every customer’s circumstances is different. Some will want to be utilising credit cards and others will be quite happy sticking with bank accounts,” Chung says.
Help your customers stay afloat
Did you know it costs five times more to attract a customer than to retain one?
That’s why when it comes to saving money and managing cashflow in the long run, it’s crucial to think about how you can keep loyal customers on board during this time.
- Look for ways to reshape your products and services to fit with changing consumer needs
- Consider offering extended repayment terms to help customers with their own cashflow issues
- Investigate whether it’s worth accepting credit card payments, as some struggling customers may be using their plastic to get out of a bind.
“At the end of the day, businesses are doing it tough, but it’s important to remember their customers are doing it tough as well,” Chung says.
Consider a business loan
Chances are, some of your customers have postponed their payments due to the coronavirus. But instead of waiting weeks on end for that money to enter your business bank account, invoice financing can help your business get paid now.
With invoice finance, you can receive a percentage of the invoice amount from a lender upfront (usually up to 95%), and then get the rest of the funds once your invoice comes through - minus any fees or charges.
However, invoice finance isn’t the only type of business loan that can boost your cashflow. Depending on your business needs, it may also be worth considering a term loan or a line of credit.
Here’s a quick rundown of their differences:
- Line of credit: where you are approved for a certain value and you can draw down on that loan, as required. This option is good if your business has a more ‘lumpy’ or uneven cashflow.
- Term loan: lump sum amount of money lent to you over a period of time. This option makes more sense for things like staff retention or stocking up for future sales, as you would generally know how much you’re going to need upfront to help with job keeping and inventory purchases for the coming months.
The good news is, taking out extra finance should be easier, thanks to the government’s SME Loan Guarantee Scheme. Under this scheme, the government guarantees 50% of all unsecured business loans of up to $250,000 from participating lenders until September 30.
So do business loans have any risks?
The short answer is: yes.
As with any lending product, there are fees and charges to budget for, and regular repayments to meet. But by being aware of those obligations and making sure you’re able to manage them, you can avoid the worst-case scenario of defaulting on your loan.
Chung recommends having a contingency plan in place: “How would I be able to afford [the loan] if my sales don’t take off the way that I’m expecting it to?”
“Only borrow what you need. Don’t get tempted to take more if it’s offered,” she says. “Be really clear on what you can afford. Understand the fees and charges.”
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