Why Preparing for the Rainy Day Post COVID-19 is Key

Despite most businesses operating in what is one of the most challenging economic downturns in many of our lifetimes, some businesses have been fortunate to still be operational as result of the support and subsidies being provided by the Government namely JobKeeper and the Cash Flow Boost.  

These benefits have been great in helping ease financial troubles and keep businesses afloat and retain staff. However, the question from a financial standpoint is, what the economic impact will be once this ‘sugar’ has stopped running through the economy. Businesses may not find themselves in such a ‘sweet’ spot. There will no doubt be impact to the labour market which directly has a flow on effect on consumer demand for your products and services. If you’re a business that is relying heavily on this Government support, I urge you to plan for the rainy day ahead and if you’re in a position of relative financial strengthit is a great time to capitalise on opportunities presented 

Times like this demonstrate that we innately do not react well to uncertainty. At CFO Dynamics, we believe our role at this point in time is to provide certainty (as much as possible) and leadership with substance. What I mean by this, is that all the work we do is to ensure we know where your business stands at any point in time – we have the relevant information at our fingertips for whatever the requirement.  

Every business has the capability to handle this situation and come out stronger on the other end, but a strategic plan will make the journey smoother. Here are our top three tips to help you prepare: 

 

Analysis based on excluding these amounts 

If you are receiving the benefits of these cash flow items, you have to look at them as a bonus, not as a standard part of your businessIf you’re unsure if this is being actioned correctly or you do not trust your financial information, seek expert advice. It’s more critical now than ever that all the information collated and reported on is correct. If your business is receiving benefits, you are not entitled to, this can put your financial standing under question. Moreover, it can offer a skewed perspective on how your business is performing and tracking, and instead show that your business is performing well but once these benefits are removed, you may be surprised by the figures.  

Once the heat of the current situation has cooled and we are all left with a massive debt to pay off because of these initiatives, the quickest way to start paying down the debt is to get money back from businesses who weren’t entitled to it.  

 

Find the balance between minimising costs while looking to invest in different areas 

 Sadly, we cannot “shrink ourselves to greatness” but we do need to be as efficient as possible with our spending. Wwill no doubt be looking at our business expectations differently for the remainder of 2020. As most of us work to see how we can reduce breakeven as much as possible, the smart move is to review and plan for the financial year ahead now. It would be safe to assume that many businesses have done their first and likely second round of cuts; by this I mean reduce unnecessary and discretionary spendingNow we need to start looking at round three and four, which sets up your business for survival as we ease back into the ‘norm’.   

It’s important to find a balance between minimising your costs while also looking at different areas to invest in. For example, if working remotely has opened your eyes to other ways of operating without the impact to efficiency, profitability or employee morale, perhaps reduce costs in these areas. This could include rent costs associated with leasing office spaces or telephone costs which can be directed to mobiles instead. This saving could then be invested further in value creation areas of your business such as operations (plants and equipment), sales and marketing staff training and professional development or building team culture.  

Amany of you know without successful sales and marketing, we/the finance team are talking at air. As always, I believe an ability to maintain a strong pipeline will lead us through this time and strategies regarding what our clients are doing (ie your clients). Effective sales and marketing strategy now will help your business develop a greater share of voice while competitors and other businesses are opting to reduce their investments and spending. 

I recently revisited notes I made back in 2008/2009 when we were going through the GFC and noted the business which came out the strongest made further investment in growth, primarily key people and sales and marketing. Like I shared above, at times like this the natural tendency is to cuts costs but to succeed it might feel like you are walking towards the future by investing more in new people and/or sales and marketing.  

This would not be hard to believe coming from an accountant, but the key is balance.  

At this time, I recommend we are very granular in our analysis of our clients and opportunities and be asking ourselves “who could potentially say no tomorrow after saying yes today?” and working through these scenarios. Take into consideration what your market and clients want now and what they may want in the future; use this insight to craft sales and marketing approaches that enables your business to stand out.  

 

Investments made at good purchase prices  

I believe I am an optimist by nature and see this environment as a tremendous opportunity for businesses that are willing to lay it on the lineA lot of private equity and similar entities are seeing this as aopportunity to deploy capital in situations where “good businesses” don’t have the equity to survive a period of downturn.  

If you’re willing to invest in ventures or areas for business growth, where others may not be able to right now, you could see yourself receiving a significant pay off.  

I want to reiterate we are prepared to provide as much certainty as possible to a situation that no one would have a comparable situation for in our living memory. If you’re open to the idea but you’re unsure where you sit financially to be able to make these investments, we are here to help.  

For the record, it is okay to be confused, overwhelmed and intimidated by your finances during these unprecedented times. We want to help you make informed and accurate decisions to leaves your business in an enviable position once we come out the other side.