Whilst all around sounds like chaos and mayhem (if you read the news, whether it be mainstream or social media), I’d like to share some thoughts on how we can best cope as business owners in this situation.
Our main objective needs to be to keep the business in shape to survive this period (forget thriving unless you’re lucky enough to be in the toilet paper business!). Additional to that and hopefully a consequence of it, will be that as few people as possible lose their jobs. As business owners we need to consider not just our small business, but the wider community and recognise our part in it (SMEs employ around 44%* of the workforce). We all need to share the pain a bit!
Wages are often the biggest expense for small businesses, so we need to consider how to conserve the cash to pay the wages, whilst we ride out this storm. The government is providing some relief in the form of PAYG discount, which will help somewhat. The balance will have to come from creative thought and actions by resourceful businesses.
When it comes to cash flow, two of the key aspects are:
- The time it takes us to get paid by customers, if we offer terms to pay
- The time it takes us to pay our suppliers, if they give us terms to pay
The gap between these two affects the amount of cash we have available to pay vital costs like wages.
There’s one word that encapsulates what we need to do here and that’s Negotiate. We need to negotiate and work with our customers to seek payment from them. It may be that they can’t pay all the amount owed, however if they can pay a small amount, that’s better than nothing. Remember they’re probably in the same boat as you.
Negotiating with suppliers is the flip side. If you can negotiate longer payment terms or pay a percentage of what’s owed, that’s better than nothing, and should help keep your supplies coming.
For example, if you have the following scenario:
| Full amount owing | Negotiated payments | |
| Customers that owe you | $100,000 | $20,000 |
| Suppliers that you owe | $ 50,000 | $10,000 |
| A monthly wages bill of | $ 30,000 | $30,000 |
There will also be the discounted PAYG to help ease the situation, as well as hopefully help from lenders to ease the pain.
This may seem a bit simplistic, and I realise that all businesses are different, however I think if we can all bear this in mind and work together, we will have a good chance of emerging intact on the other side.
If you have other issues that you’d like to discuss with a commercially experienced financial person, please don’t hesitate to contact CFO On Call on 1300 36 24 36. We’re happy to offer a free ear and advice to get you through this.
For more information on how to loosen the cash flow squeeze gap, download our free eBook, ‘How to Get Customers to Pay On-time‘ by clicking here.
*Australian Small Business and Family Enterprise Ombudsman – Small Business Counts 2019
Free Business Coaching for COVID-19 Crisis
In light of the current economic conditions, CFO On-call would like to offer free of charge coaching calls to help you during this unstable and difficult time.
No doubt we are all under pressure one way or another. We at CFO On-Call are also finding it difficult to navigate, but we have been through multiple challenging market conditions in the past and understand how stressful it can be, and how helpless it can make you feel with no one to talk to.
We can offer valuable insight into how you can strengthen your business profits, balance sheet and working capital, and at minimum, act as a sounding board to go over business questions and stresses.
It is very important to become proactive, resilient and adaptable to change, but more important to act quickly when there is a sudden change.
There are no sales pitches attached. We have half hour sessions available in the coming weeks for businesses of any size. Please contact heatherl@cfooncall.com.au or call us on 1300 36 24 36 (Aus) or 0800 180 400 (NZ) to book a free 30 minute coaching call.
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