On Wednesday 25 March, I was privileged to be part of a Casey Innovation Crowd webinar called “The Other Side” which aimed to “provide critical updates and guidance for local businesses trying to manage the impact of the Covid-19 virus.
This was a fantastic initiative since local businesses are surely facing their most serious challenges of recent times. Since attendance to the event was limited, what follows is a précis of some of the guidance provided for those who were not able to participate.
There is no doubt that Covid-19 will have a deep and lasting impact on the way we do business going forward and whilst it is undoubtedly tough at the moment, as Benjamin Franklin said: “Out of adversity comes opportunity”.
In tackling the problems that Covid-19 has imposed, we will find new ways of working, new ways of doing business and even new products and services not previously considered. But right now there are some serious issues to address immediately and since many businesses simply cannot function as they did previously and/or have clients that will be spending less, the bulk of the problems will be financial, so this is where we will focus first.
People start businesses because they are good at what they do, not because they are good at business and for many the idea of managing financials is a foreign practice. However, now more than ever, it is important to ‘know your numbers’ and so undertaking the following is essential:
1. Determine your cash position. How much cash do you have access to? Be conservative about expected revenue (some may not pay) and analyse all outgoings. Review all expenditure and put off anything non-essential, see what can be deferred or delayed and hence calculate your cash position over the coming weeks. Even if it does not look pretty, you are far better off knowing the real situation rather than burying your head in the sand as this is stressful!
2. Set revised targets for sales, expenses and net profit and create a budget. You don’t need special software to do this (Excel will be fine) and you will then be in a position to forecast financials over the next few months. You need to include everything (i.e. every expense item) and if you use Xero, MYOB or Quickbooks, you can use the P&L summary reports from any of these tools as a basis for creating your budget till the end of this financial year and beyond.
3. Monitor your financial situation. Ordinarily, you only need to spend approximately 30 minutes a month to keep on top of your financials, but under the current situation, I believe that fortnightly or even weekly might be necessary. Remember that ‘what gets measured, gets managed’.
4. Manage your expenses. If you create a budget as noted above, then you can then partition your budgeted expense items into 3 separate areas:
a) Variable Expenses. These are typically ‘internal’ costs and vary by month (e.g. Postage & Stationery, Travel, Training etc) and over which you have most control so you should focus on minimising these first.
b) Fixed Expenses. These are typically ‘external’ costs and don’t vary by month (e.g. rent, rates etc). Your ability to affect these quickly is low, so whilst it is worth seeing if you can get rent and rates relief, don’t expect any immediate relief here.
c) Staff Costs (Wages & Salary, Superannuation, Payroll Tax). These are usually the biggest costs for a business so look to see if you can reduce hours, determine the need for casual staff and contractors, even see if everyone can take a pay cut to save jobs.
Stay tuned for more advice on how to manage your business under these difficult times.
Ian Ash is Managing Director OrgMent Business Solutions – www.ombs.com.au