Bruce Gleeson, FCA, FCPA, RITF &
Mark Marlow, RITM, FIPA
The financial and mental health effects that Covid-19 and subsequently the Delta variant have had on many businesses in my opinion will only be fully understood over the next 1-2 years as we see the long-term tail effects playout. And whilst in NSW we are rejoicing as we move beyond Freedom Day it is critical that business owners maintain focus as financial stimulus is withdrawn by the Governments and there is transition back to a normalisation of capital cycles and debt recovery processes that were well and truly disrupted during Covid.
For many in business the challenges that they have had to confront during Covid-19 have been many and varied and arguably the petrol could be close to or "running on empty". Whilst during the peak times of Covid-19 I emphasised the need to have a Crisis Management Plan, as we transition out of the pandemic, this plan still has just as much currency. With that in mind I have outlined below 10 vital steps as part of assisting you maintain business focus.
Crisis management is the design of strategies to help a business deal with a sudden and significant negative or "black swan" event. Many small to medium enterprises (SME's) typically do not have the kind of detailed plan that larger businesses and emergency response organisations have.
1. Be honest with yourself: SME owners can isolate themselves and think that they must find the solution. However, the first step to getting through a crisis is admitting to yourself that the business is in a tight spot. It is nothing to be embarrassed about.
2. Know what financial support is available: Throughout the lockdowns a range of financial support has been announced. For NSW information can be found at https://www.nsw.gov.au/covid-19/financial-support. You don't need to be an expert at knowing everything, but it does help to stay in touch with possible financial support so that you can discuss eligibility with your bookkeeper or qualified accountant.
3. Update your financial accounts: It's critical that you ascertain your current financial position, i.e., your asset and liabilities. Specifically, you need to know what you owe, to who, when the major liabilities are due and how much they are. For example, rent, loans, taxes, etc. You also need to know who owes you money and if or when they are going to be able to pay.
Ensuring that your financial accounts are up-to-date is not only critical to so you know can make informed decisions, but it can also protect you later if the financial position deteriorates. It is also a key starting point to develop a cashflow forecast.
4. Are you already broke or insolvent? this is a tough question to consider - but you need to. Whilst in the 1st round of Covid-19 there was temporary relief for insolvent trading, that does not apply to this lockdown period and as we transition out. There are serious penalties if you continue to trade a business whilst insolvent.
The law says you are insolvent if you are unable to pay your debts as and when they fall due.
If you can obtain more funds from a lender or investor to pay these debts, then you may be ok. However, if you can't, then you can't pay your debts when due and you must stop trading. Incurring more liabilities where you are already insolvent can lead to serious ramifications.
5. Talk to your financiers: You need to engage with your financiers early and talk to them about your financial position (see point 3 above), the business outlook and understand what support and/or options they may be able to provide. Most major financiers have made announcements regarding their willingness to support customers through Covid but this too will now start to transition.
6. Talk to the ATO: Many SMEs leave paying the ATO last because they are not necessarily seen as critical to the business. However, this ignores the fact that taxes, i.e., GST, PAYG, SGC cumulatively make up one of biggest expenses of SMEs. Also, directors are personally liable for these debts.
It's important that you keep up-to- date with your lodgements on time notwithstanding the financial position. This is also important should a payment arrangement be sought from the ATO.
Your bookkeeper, qualified accountant or other professionals will be able to assist you if you need to approach the ATO to assistance with a repayment plan. However, please see the following link for the support being offered by the ATO: https://www.ato.gov.au/General/COVID-19/Additional-support-during-COVID-19/
7. Talk to your suppliers: Many SMEs may feel uncomfortable in discussing their financial position with key suppliers. However, many suppliers themselves have also been impacted by Covid-19 and it is important to have an open conversation with them and see what you can work out together. Ultimately it is in the supplier's interest where possible to have you remain as a customer over the long term.
8. Get qualified help: Yes - it will cost you some money that you probably feel like you don't have now. However, getting qualified help is likely to save you money in the long run. Whilst many professionals offer business advice and other services, they don't know areas around complex insolvency laws. That is why you need to speak to a specialist like us. We offer an initial free confidential consultation so that you can a better understanding regarding your financial position and what options there may be so that you can make an informed decision about what to do.
9. Look after your mental health: Managing a business whilst it is in financial distress is extremely challenging, particularly emotionally. It is important through this process that you recognise and look after your mental health.
Ensure you ask for help if you need it. Reach out to your medical practitioner or call Beyond Blue or Lifeline if you need urgent assistance.
10. Don't wait: Many SMEs are in a similar position presently - Covid-19 wasn't something that they could readily plan for. Despite a range of Government financial support, SMEs do not have significant cash reserves. So, this should not be viewed as a failure on your part. But we encourage, SMEs in financial distress to get qualified advice as quickly as you can. There is light at the end of the tunnel.
These points will help you to map the road ahead and develop strategies to help your business or alternatively to decide that it needs to be closed. Once the map is reviewed strategic decisions can be implemented. That help might as I mention also be a closing down and liquidation of your business. A less palatable option but one that might be necessary if after reviewing the map you decide the business cannot work.
Jones Partners Insolvency & Restructuring is a Chartered Accounting firm that specialises in all forms of business turnaround, restructuring, exit planning and insolvency. As we transition from lockdown we remain readily accessible to help you via the telephone, Microsoft teams or Zoom or in person. Please feel free to contact us on 02 9251 5222 or firstname.lastname@example.org. You can also visit contact us via www.jonespartners.net.au.