It is often said that SMEs are the backbone of the economy. Or the lifeblood. Or some other anatomical metaphor that suggests without a healthy system of SMEs, our economy would crumble. And that’s because its true. Which is why, when there’s an economic crisis, it’s imperative that business owners have the tools to minimise the impact to their business to weather life’s storms.
I have broken down a 4 stage approach to help SME’s manage their business during an economic downturn:
Prevention is all about identifying the risks to your business. If you haven’t already, identifying risks is your first step in managing the impact of a crisis. Every business is different, and you will need to identify and develop a management plan that is reacting to your circumstances and challenges.
The best way to identify potential risks is to ask “what if” questions.
- What if our company has to work remotely?
- What if the government places more restrictions on businesses and how do I implement these?
- What if my suppliers are unable to provide product or services for my business?
- What if I run out of capital to weather the storm?
- What cuts can I make in my business that won’t impact my ability to bounce back post-crisis?
Once you have identified your questions the next step is to brainstorm. Put together your crisis response team, different people you trust such as financial advisors, your accountant, or your business partners to determine how you might minimize the impact of these risks. Are there any lessons to be learned from the past?
You cannot be prepared for everything. Having a “What if there’s a global pandemic and no one is allowed to leave their house” plan before now would have made you seem crazy, and no one could have seen it coming (except maybe those people on Doomsday Preppers). Although you may not be able to completely prepare for everything, having a quick response to unforeseeable circumstances will help to mitigate their impact.
Business performance and assessing what the market is doing is critical, so having a solid understanding of your business’s financial situation is a must.
Key factors to consider in your financial analysis include:
- trends in cash flow(positive or negative), revenue and expenses
- current sales of various products or services
- level and turnover of stock
- review of debtorand creditor days
- debt, and how your business services debt
Understanding both the global and national reaction to the crisis is also important. Knowing the contingencies being rolled out and what is available to help your business is also important. Amidst the COVID-19 threat, the Australian government has rolled out a number of initiatives to assist SMEs, including cash flow support and temporary financial relief including:
- Boosting cash flow for employers
- Temporary relief for financially distressed businesses
- Increasing the instant asset write-off
- Backing business investment
- Supporting apprentices and trainees
A full list of the support available can be found here on the Treasury website.
As well as taking advantage of government incentives, what a business does to support itself is also important and requires a multifaceted response plan. Managing your cash flow, broadening your customer base, marketing your business effectively, keeping the morale of your employees high, and always that remembering that any crisis will inevitably end, meaning you’ll want to be in the best position possible when it does.
Your plan may include things like:
- managing your debtors and creditors to make sure your business has enough cash to pay bills, wages, taxes and other expenses
- assessing your receivables, inventory, business expenses and available working capital
- reviewing your accounts payable and business expenditure – considering what can be reduced, rationalised or even cancelled. This includes your day to day costs such as rent, telephone use, energy consumption and transport expenses
- negotiating with your suppliers to get a better price and better credit terms
- considering shortening the time frame between customers ordering and paying
- sending invoices quickly and offering discounts for early payment. Asking for work-in-progress instalments
- establishing a good relationship with your financial institution
- reviewing your business processes and overheads. Money spent making your business more efficient will make it more competitive and more resilient
- investigating ways to get more out of your assets, such as by renting any unused space or equipment
- ensuring you have access to funding or a line of credit should it become necessary
- Minimising unnecessary spending – for example advertising and marketing cuts and embracing lower cost or free media. Maintain a presence in your customers lives through social
- Not cutting too much – cutting costs in the form of staff may be tempting, but whatever the crisis, it will eventually end, and if you have no staff left you won’t be in a position to bounce back when it does
The biggest part of planning for a crisis is planning how you are going to bounce back. Have a plan ready to go as soon as the crisis ends, and make sure you have the assets to see it through. Your bottom line will likely have taken a big hit during the crisis, it’s important to get back to business as soon as possible.
Your recovery plan should make sure you can do this. It should contain information relating to planning for recovery as well as the resumption of critical business activities after a crisis has occurred. It also outlines the time frame in which you can realistically expect to resume usual business operations, as well as the business assets necessary for you to do so.
If you would like to talk about your business cash flow plans or securing financing, call 1300 737 426 or email email@example.com
By Brad Tefft