The impact of this pandemic has been extreme and varied. Some clients have thrived with increased demand for their products and services. But in the main, it has been detrimental to business, particularly through this second lock down.
Loss of revenue and the need to change customer interaction
The closure of business premises and the impact of forced social distancing has directly resulted in most businesses needing to change the way they interact with customers. Industries such as hospitality have been severely impacted and have had to move from face to face customer interactions to a contactless model of takeaway and cook at home. Most of these businesses have suffered severe drops in revenue and margin. These industries are unlikely to be able to return to their pre COVID business model in the short to medium term. Whilst there is an element of short term survival in this approach there are many examples of business owners creatively engaging with their customers and expanding their customer base, particularly in their local community.
Just as we are meeting clients and presenting seminars online it is likely that this situation has accelerated the transition to a digital business model for many industries that were lagging. Some will fail to survive, but others will thrive through changes they have been forced to make and opportunities that creative entrepreneurs have identified.
The acceleration of digital transition
Our business advisory team has been involved in the digital transition across a number of our clients. The use of Cloud based accounting systems facilitates the opportunity to better embrace e-commerce and click and collect type sales channels, deeper understanding of your customers through CRM and digital marketing solutions and replacement of manual processes with more efficient machine learning and AI. Whilst there are many businesses using short term band aid solutions at the minute we anticipate an acceleration of the adoption of this technology as a direct result of COVID.
Short term boosts that can create a false dawn
Many businesses continue to survive due to short term support. Jobkeeper, State Government grants, payroll tax exemptions and the PAYG boost have propped up many businesses that have had their revenue decimated. This is further magnified with rental relief, ATO debt and bank debt being granted repayment holidays, and a stay on insolvency actions. Businesses that are relying on these measures need to be particularly vigilant in coming months and have to ensure they retain deep connections with their customer base.
Stringent expense management and cutting in the right areas
In any recession business looks to cut costs. And as accountants we are always quick to look for cost reductions as cash flow becomes tight and revenues dry up. However, we recommend business owners are prudent in which expenses are cut. Ultimately you need revenue. Some expenditure has a direct link to longer term revenue flows; be it stock that you will need available as the economy opens up, investment you need to make in new sales channels, or marketing activities that directly leads to sales. Certainly look to manage expenses, but ensure you maintain revenue and particularly margin.
Cash flow planning
Cash flow is the lifeblood of business. We expect many businesses that are currently surviving will be more severely impacted by this crisis in early 2021. Whilst for some revenues will bounce back quickly, there are other businesses that will continue to struggle throughout 2021 with less support and deferrals available. We believe that cash flow planning and short to medium term forecasting is particularly important at the moment. Understand what your bank balance is likely to be in 6 weeks and 6 months, not tomorrow. Understand what sales and margin you need to be making to break even and maintain cash flow. Be particularly prudent on credit policy and debtors as we experience a recession for the first time in many years. Bad debts can kill business. And seek expert assistance, our business advisory team are ready to assist your business in cash flow planning and forecasting – this exercise generally leads to a much deeper understanding of the finance cycles in your business and can assist you as business owner to plan in a much more strategic manner.
Please contact our Business Advisory Specialists on (03) 9835 8200, if you have any queries about the points above.