Whether we like it or not COVID-19 has had an impact for the better or worse on just about every business in the world!
The question is how will businesses survive? How will those negatively impacted cope until sales start to go back to pre-COVID-19 levels… if ever? How will those positively impacted be able to take advantage of new opportunities that have arisen due to COVID-19? How will those that have no option but to shut down, do it in an orderly fashion, without too much penalty for well-intentioned business owners who, through no fault of their own, have had their business wiped out?
If you’re one of the lucky ones who can survive and even see new opportunities, how are you going to take advantage of them?
If business growth is an option for you or if you just need to manage the current situation, to keep going until things improve, there are some key financial issues that need to be considered.
Here are some key financial issues to consider:
Sales fluctuations need to be factored into all business planning. Whether sales are going up or down, the impact needs to be considered. Your level of sales impacts other factors, such as costs, overheads, customer and supplier payments, stock requirements and job management.
In these uncertain times it’s vital to plan for the worst as well as hoping for the best. That means ‘What If Scenarios’. When budgeting and cash flow forecasting you need to consider several scenarios… best, worst and most likely. If you pre plan, you will be able to run the business to cope with most scenarios.
For example, if sales suddenly go up, how will you purchase extra goods and services required to deliver? Do you need to have funding in place to cover the cost until you get paid by customers? Lenders/equity investors have funds now, but you must present your proposition properly to give them confidence to approve. They generally require 3 Way Forecasts i.e. Profit & Loss Budget, Balance Sheet Forecast and Cash Flow Forecast.
If sales suddenly go down, how will you manage costs and overheads to suit? Creating as much flexibility as possible in outgoings is vital to cope with fluctuating sales. On the other hand, if you really can’t do that, another strategy is to work out your break-even sales point to cover your fixed overheads. Break-even means a $0 net profit result. In some cases, break-even may be a good result in uncertain times. Once you know what your break-even sales point is, you can use that as a basis for targeting sales to achieve or improve on that result.
If you have to withstand losses, how long can you do it for and how will you sustain that? Like the country’s economy, some business owners may decide to wear losses and debt to keep going, if the business has a viable future beyond COVID-19.
The key to getting this right is to employ logical thinking, which is not easy to do, if you feel stressed and emotional about what’s going on. CFO On-Call people have worked through financial crises, downturns, recessions, booms… you name it, and we are here to be your ‘Financial Co-Pilot’ through these turbulent times. Call us to arrange a brief chat about your circumstances and how you can make the best of them.
If you would like guidance on how to effectively manage your financial roadmap, take advantage of a FREE 30 minute Coaching Session with a CFO On-Call. Click here to book yours.