Managing Your Balance Sheet Post COVID-19 Stimulus

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2020: The AFL came to Queensland. The Grand Final happened on local soil, for the first time ever outside of Melbourne. All it took was COVID-19. Who knew what the “A” really stood for in AFL anyway?

What would have previously sounded like a ridiculous hope has become a reality.

What does that mean business-wise?


Business forecast following the economic impact of COVID-19 

The government’s fast response, timely updated decisions, and the general wish to keep the economy going meant many implementations in the last year. 

The business landscape included:

  • An initial 6 months JobKeeper support expanded to a full year ending only this 28th of March 2021. The last 6 month was more focused in scope, covering only the most affected industries (retail / teaching / hospitality / aviation / fitness / tourism) and offered a lower payment.
  • The ATO commenced its debt collection efforts sooner rather than later in a targeted strategy, careful not to tread too hard. That front received surprisingly low media coverage in the crisis.  
  • A safe harbour relief period for affected businesses.
  • Statutory demand relaxation period.
  • Landlords and banks relaxation periods.

We can only speculate on how many unsustainable businesses survived based on JobKeeper, cheap Government loans, landlord moratoriums, and the ATO’s stay on debt collections. Financial obligations are going to come back full swing with the end of the most generous government support plans. 

In fact, we know a large number of Zombie companies are going to get flushed out. Annually there is an average of 9,300 businesses entering administration, according to ASIC. But last year, less than 5000 businesses were insolvent.

Not only were some unsustainable businesses kept floating between life and death, but the true impact of COVID-19 has been entirely hidden. The stop of most Government assistance will start an insolvency wave that could last for years.

A few support plans are forecasted to keep some industries alive, such as a $1.2 billion tourism and aviation package. It is planned to fund cheap flights to encourage tourism inside Australia, but up to 150,000 jobs remain on the line.

The size of the insolvency wave will depend on how much pressure will be applied on business owners. The treatment of outstanding debts currently on ATO standby and the statutory demand hold will be playing a big part in how many businesses are affected.


What actions to take at this uncertain point in time? 

From a financial advisor perspective, the current period is the prime time for a business health check and turnaround. 

What would have previously sounded ridiculous to contemplate has become a reality. 

The Australian Small Business and Family Enterprise Ombudsman’ COVID Recovery Plan holds plenty of recommendations that are worth contemplating. Some are practical, others are less so, but everyone should find some useful information.

Based on market research and general feedback from the community, a number of industries within the Australian economy are showing promising signs of recovery. However, uncertainty is being faced by all organisations that relied on government stimulus packages. 

All organisations now should have stabilised their operations and be experiencing recovery. Plans for the post-stimulus era should be kicked into gear and acted on.

To date, many organisations have elected to defer the payment of liabilities as they sought to preserve cash reserves in the short term. As a result, these businesses are carrying significant liabilities that will require a plan to settle. The last thing needed is for that to become a long term debt impacting underlying business operations.  

Planning, scenario analysis and creating a cash flow forecast should be elevated as priorities. Owners, Directors and Executive teams have to deal with the next phase of steering the organisation through the COVID-19 scenario.

If you are unsure about where your business stands or about your clients’ planning, I encourage you to call us or refer them for an initial discussion with us at no cost. We want both you and your client to survive so you can keep doing business in the future.


How to plan your cash flow forecast 

To help with your cash flow forecasting, you should consider:

  • Minimum realistic revenue levels – Calculate it using current trading levels as indicators of future performance.
  • Statutory liabilities – In our experience, being early to negotiate payment arrangements lead to more favourable outcomes. Don’t wait.
  • Other deferred liabilities – As normal operations return, the settlement of deferred rental and other arrangements with creditors needs to be addressed. These will need to be factored into your return to normal.
  • Workforce requirements– There exists a cost scenario that needs to be considered. Our advice is to focus on productivity in your teams and how this should be maximised against revenues and costs.

Strong planning and asset management can make a real difference in your business’s longevity in this post-stimulus time. It is important to be realistic but also not to be blind to opportunities.

The future holds many surprises and planning can turn a wish into an unexpected reality.

Should you be interested in an external input and a review of your planning and operations, Climb Business has the experience and frameworks that could reveal advantageous opportunities in this time of extreme uncertainty.

Get the assistance you need to assess your prospects and plan accordingly.

We specialise in helping directors of small businesses in financial distress and have your best interests at heart. 

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If you want my team at Climb Business to help you stabilise and take back control of your business, just book a call.

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