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Six ways small businesses can prepare for a reduction in government support

Written by Greg Millar on August 3rd, 2020.      0 comments

As the COVID-19 pandemic matures, the initial economic support introduced by the government will eventually begin to wind down.

welcome we are open signFor small businesses, which are less likely to have deep reserves, this means finding ways to become self-sufficient despite the ongoing challenges posed by the once-in-a-lifetime crisis, both economically and logistically.

So, what can small businesses do to ensure their long-term viability when the government turns off the tap?

1. Maximise government support

Firstly, small business owners should use this period to maximise every bit of government support – no matter how large or small it may be – because every dollar counts, particularly during a pandemic. Loop in your accountant, lawyer or business adviser, find out what you’re still eligible for and claim it.

2. Be across your financials

Next, small business owners should ensure they truly understand the nature of their business’ financial health. What does your profit and loss statement look like? How much has it changed over the last quarter? Where does it sit when compared to the same time last year? By having an innate understanding of their business’ financials, business owners will be able to quickly identify the unnecessary costs to be stripped out of their operation so that if things do get tighter, they have a handle on the situation.

3. Understand how you'll really be impacted

How will the loss of financial support really impact you? Which businesses will be most impacted by lower demand if the economy dips when the tap gets turned off? And how will these struggles impact you as well as suppliers? According to Xero research, $115 billion in invoices to small businesses are paid late each year by big businesses. That’s around $52,000 per small business. In order to know how much they’ll be impacted, small business owners should know not just how they’ll be impacted, but how their customers will be too.

4. Build a contingency plan

If things do get harder, do you or your staff understand what will be required to ensure everybody gets through with as little damage as possible? By building a contingency plan, small businesses will be prepared to try to save the jobs of their staff and ensure their survival. An example would be working out the extent to which staff would need to take a pay cut, or how much working hours would need to be reduced in different scenarios. Fight the tendency to put off bad news and make sure your staff are onboard with what would need to happen if business gets very bad. It’ll make it much easier to handle tough times.

5. Position yourself for spending

However, it should be noted that businesses can’t shrink themselves to greatness. When the time is right, and the economy begins to show signs of improvement, business owners need to be ready to spend. Those around during the GFC will recall that many of the businesses hit hardest were those that chose to totally bunker down and avoid marketing. In order to grow with the rebuilding economy, businesses should know where their cash should be spent when the time is right.

6. Consider funding sources

With the future uncertain, be aware of additional sources of liquidity which you can tap both in moments of need, and when the time comes to hit the accelerator. What options do you have, and which can you rely on to help you turn on your own cash flow tap? Do you have any outstanding invoices? If a customer is having a hard time paying, consider invoice financing, which allows you to liquidate up to 85% of your invoices within 24 hours. 

There’s no doubt that small businesses are doing it tough as a result of COVID-19. But through planning, considering the impacts of the pandemic on others throughout their demand chain, and preparation small business owners can find navigate their way to better days.

Contact Alliott NZ's Chartered Accountants and Business Advisers to find out how in Auckland on 09 520 9200.

Article first published by Greg Charlwood on 10 July 2020 as Six ways small businesses should prepare for a reduction in government support - The Market Herald. (2020). Retrieved from https://themarketherald.com.au/six-ways-small-businesses-should-prepare-for-a-reduction-in-government-support-2020-07-08/

 

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