In many sectors of the Australian economy, activity has slowed significantly. For businesses experiencing a loss of turnover and activity, moving fast to ameliorate this change is the key to survival. We suggest six factors to help businesses manage the downturn ….
Revise your forecasts and focus on cash
If revenue has slowed down, it’s time to cut-back on expenditure. Manage cash flow and preserve credit / cash reserves for as long as possible. Forecasting is important – to know when cash will flow in and out and when cash will run out. Trading insolvent is a risk for directors, though recent changes due to Covid-19 relaxes the rules a bit, giving directors six months relief to get their companies through the crisis.
Whilst some sectors may bounce back quickly, in other sectors consumer’s might be slow to spend money. Model a range of scenarios to assess the possible outcomes.
Be aware of government stimulus packages
Both Federal Governments and State / Territory governments are providing packages of support for businesses and individuals. See our summary below. Access what is available.
Downturns are stressful for people
The human side of economic downturns is often increased stress and anxiety, which can affect staff performance and behaviours at work. Managers need to be sensitive to employee changes that may impact the organisation adversely. Look after the health and wellbeing of your employees, be sensitive to changed behaviours and ensure your best staff remain with you and are ready for the upswing.
Maintain critical relationships
Keep in touch with your key customers and suppliers. Help them through the downturn and they will help you. Keep in touch with bankers, regulators and competitors. Industry bodies are good sources of information, support and an avenue into government.
Be strategic, and adapt to the situation
Downturns create opportunities as well as risks, so revisit your strategic and operating plan regularly. Think laterally and meet as a management team more regularly. Social distancing increases the attraction of buying online, so make sure your online offering is up to speed, or start an online offering if you can. Your competitors may be struggling, so keep close to your markets for opportunities or risks.
Interest rates are low and the Federal Government has recently amended the limits on capital assets that can be written off in 2020 (see below). For businesses doing well and with good credit cover, this might be a good time to buy new productive assets or buy a new business (or take over an ailing competitor).
Unlike financial recessions, this downturn is disease-induced. The upturn will be quick and strong in at least some sectors.
Understand your duties as a director
The Federal Government has introduced a six-month relaxation of directors’ insolvent trading liability to assist directors to trade their business through the downturn. Directors should meet more regularly and engage with all stakeholders. They may owe a fiduciary duty to creditors, who often become a significant source of finance for a business during a downturn.
There are some important guidelines about how this should be done to minimise the risk of subsequent legal action against directors by regulators or other stakeholders in the company.
Your Australian accounting or law firm may be providing advice but if you need more, we can assist with operational, financial and strategic reviews. We have managed and advised businesses through previous downturns and know what to look for. Contact us for more information.
留言