Are SMEs ready to stand on their own two feet?

There are less than 100 days till JobKeeper ends and that means now’s the time for SME owners and directors to ask themselves the hard questions and plan for the future, urges national insolvency solutions firm Jirsch Sutherland.

With the Australian Bureau of Statistics (ABS) reporting that 72 per cent of businesses have taken a revenue hit as a result of Covid-19, while 73 per cent of Aussie businesses have accessed support measures (wage subsidies, renegotiated rent/lease, deferred loan repayments), the biggest question of all is, ‘can my business stand on its own two feet without these crutches’?

“The JobKeeper safety net is being removed in three months―not to mention other stimulus initiatives and forbearance measures ending soon―and that means business owners should be getting on the front foot now to survive,” says Andrew Spring, Jirsch Sutherland partner.

“As a business owner, you know your strengths and abilities well, but you should also know when to call on the expertise of others.

“We’re experiencing an economic event that’s both macro and micro in nature and company directors need to be proactive about assessing the impact on their business and the changes required to get back on the right course. That includes getting your accounts in order, meeting taxation and superannuation obligations and, if necessary, seeking professional help from a qualified adviser.”

Bill Lang, executive director of Small Business Australia and a business coach and adviser, says SME ‘heads are out of the sand now’ and many business owners are now developing plans to survive and ‘get to cash flow neutral or positive asap’.

“There are practical steps owners can take to avoid bankruptcy, so with the right advice early on, owners should not be scared to consider shutting their business with a view to preserving resources to reinvent themselves in a post-Covid-19 marketplace. Getting educated about their options is critical,” he says.

Lang says SMEs should be doing cash flow planning ‘under the worst case scenario’.

“If neither a Covid cure nor vaccine are found, society will have to live with it. Before JobKeeper ends, business owners should determine what expenses can be reduced to minimise the cash flow impact on their business, invest in further digitisation, particularly e-commerce and digital marketing, and most importantly keep healthy, talk to other business owners and family, keep close to creditors and involve them in their plans,” he adds.

“It’s also crucial to get professional advice.” 

8 questions for business owners to ask themselves now:

1 Cash flow: What is my cash flow situation like now and what will it be like after stimulus ends?

2 Revenue streams: Will my revenue streams recover and are there opportunities for new streams?

3 Staff: Can I afford to keep staff on post-JobKeeper?

4 Deferred liabilities: Can I meet deferred payments? (e.g. rent, mortgage)

5 Tax obligations: Do I have the money to pay tax when it falls due?

6 Superannuation guarantee: Do I have enough money to meet the next superannuation payment?

7 Worn out/no mojo: Do I want to hang on or have I lost my passion for the business?

8 Personal guarantees: Are my personal assets at risk? (e.g. personal savings, house, car)

“It’s crucial to understand that personal guarantees don’t fall away under the Covid stimulus or deferral measures. Business owners should be aware of ‘sleeping personal guarantees’ that will awaken later―e.g. leases, make-goods, trade credit applications, finance, credit card debts etc. Any debt deferral decision may exacerbate liabilities, which could put personal assets at greater risk if the business is ultimately unable to meet the liability,” says Spring.

10 tips to prepare for the post-stimulus environment

1 Plan: Plan for the current conditions, the immediate post-stimulus environment, and for the longer term. Ensure you have a contingency plan should the economy be hit by a second coronavirus outbreak.  And continue to revisit your plan to ensure it remains relevant to your business and the market.

2 Calculate: Assess your current and projected cash flow.

3 Assess staffing needs: If your business has experienced change, it’s essential to reassess your staffing needs.

4 Reduce costs: Where possible, cut costs to minimise further impact on your cash flow.

5 Communicate: With your staff, customers, suppliers, creditors.

6 Renegotiate rent/lease terms: If you will struggle to pay your rent, speak with your landlord now and renegotiate existing arrangements.

7 Funding: Engage with your bank/lender to discuss funding needs or repayments/interest rate relief. Or seek alternative finance.

8 Give yourself breathing space: The Safe Harbour and Voluntary Administration regimes are designed to provide companies and their directors with breathing space and can secure leniency from creditors, buying you time to ‘right the ship’.

9 Reinvent yourself: Prepare for the ‘new dawn’―whether it’s restructuring your business or restarting with a new model, strategy or market post Covid-19.

10 Put your hand up: If your mental health is being impacted by the current financial stresses or the need to let staff go, speak with a trusted adviser or contact Beyond Blue or another mental health organisation.