Many small businesses have suffered a significant decrease in turnover during COVID-19 and while some have recovered well, others are still heavily reliant on JobKeeper.
Once this wage subsidy scheme comes to an end on the 28th of March 2021, many businesses will face significantly higher wage costs. This, combined with a further potential decrease in revenue, can have a significant impact on a business’s profitability and cash flow. But this doesn’t have to be the case if you prepare your business well.
As stated in the ABS, the Australian economy (GDP) rose 3.1% in the December quarter because COVID-19 restrictions continued to ease. This comes after a 3.4% rise in the September quarter of 2020. It gives us a glimmer of hope that if the overall economy is bouncing back nicely, so can your business.
If you have been receiving government support it’s now time to start preparing your business for a successful transition to a post-JobKeeper environment.
Plan well ahead
Cash flow will become more important than ever, so it’s important to plan your business activity and expenses, including resources, at least 3 months ahead. If you have had little visibility in the past, make it a priority to forecast your business activity. What if your revenue stayed the same for the next 6-12 months? What implications would that have and what actions would you need to take? Another angle to investigate is whether your current pricing model provides you enough of a profit margin and if not, how could you adjust it? Answering all of these questions will help you plan ahead strategically. Additionally, you might also want to consider a revamp of your business plan including a market analysis of your current competitors and consumers to identify new opportunities for your business. Here are 4 tips to optimise your business plan.
Cut back on unnecessary costs
If your turnover is still recovering, identify unnecessary costs that you can cut back on. It surely is easier said than done but you might need to consider strategies such as restructuring your business, including a potential reduction in headcount, in order to get back on track. Also, consider negotiating existing contracts with suppliers and clients. Most importantly, study all parts of your business from marketing to operations and fixed costs, including rental. The aim is to understand what brings your business the most value and cut back on other nice-to-haves.
Adapt to the changing needs of your clients
Wondering how COVID-19 can be a catalyst for business innovation? Start off by focusing on the positive and identify new needs your clients might have as a direct result of this pandemic. What can your business offer in this new reality? Or should you stop offering certain services because they are no longer needed? This exercise might inspire a whole new avenue for your business to pursue, which can add additional revenue streams. Creating new revenue streams can have a positive impact on overall cash flow, turnover and profitability.
Hustle for every penny
One of the quickest ways to increase cash flow can be to streamline your payables and receivables. Check that you are getting paid on time and if not, put stricter payment terms in place and continuously follow up on overdue payments. You might want to consider including a penalty amount for late payments or offering a cost reduction to encourage clients to pay on time. Regarding your payables, reassess your liabilities and negotiate terms with your providers, who’ll have to accommodate by providing more flexibility during these uncertain times. Also, while it’s important to pay your bills on time, in case you ever need to apply for a business loan, make sure you manage your payments efficiently just before the due date, which will leave you with more cash in the bank.
Consider different funding options to ease pressure
If after all of the above you are still finding yourself in a difficult situation with your cash flow, you might want to consider getting short term funding. Your business might become eligible once you are no longer receiving JobKeeper. If you are in urgent need of once-off cash, you could look into an unsecured business loan that you can easily apply for online, which can then be disbursed on the same day. In case you are looking for a cash facility that you can tap into on a regular basis, you should consider a business line of credit, which will give you access to funds when you need them. You’ll only have to pay interest on the total amount borrowed, not the approved limit. If you are looking for more inspiration check out our article on how funding can revive your business in 2021.
Are you ready to apply for a business loan? If you are a small business and would like to discuss options on how you can navigate this transition into the post-JobKeeper world, don’t hesitate to get in touch with our team of business finance experts here at Lumi. We will be happy to discuss your options.
Your Lumi team