As businesses in Australia continue to manage the health impacts of COVID-19, we are yet to see the true impact of the resulting financial crisis. In my view the worst financial ramifications will not be seen until midway through the 2021 calendar year and it will be important for businesses to plan ahead.
As a trusted advisor to a diverse range of Australian businesses, I have ridden the COVID-19 roller coaster with them. It has been a difficult and challenging time which has impact every Australian business to varying degrees. This experience leads me to conclude the worst of the cash flow challenges are yet to be seen.
The lag in the financial and cash flow impact is due to:
- The Federal Government’s JobKeeper assistance will end in March 2021. For many businesses, it already had ended. This employer support has provided a financial buffer for businesses during 2020.
- Many of the state government assistance packages are now ending. Very few will continue through into 2021.
- Banks and financiers have agreed to temporary a suspension of loan repayments. Many of these deferrals will end in 2020. In 2021, most lenders will be required to resume repayments and start catching up on the arrears. Any resulting foreclosures and mortgagee in possession sales will not been seen until well into 2021.
- Landlords have also agreed to temporary rental reductions. Most landlords will expect rent payments to return to normal prior to 2021. Many will treat the temporary reduction as a deferral and expect the shortfall to be paid. 2021 will also see the removal of the moratorium on evictions.
- Temporary restrictions have been placed on insolvency actions and bankruptcy proceeding in 2020. The restrictions on debt recovery activity will be significantly eased or removed completely in 2021.
- Many businesses will have expended significant cash reserves during the COVID-19 shutdown period. Others will have exhausted savings in preparations to re-open following a restricted trading period. As a result, many businesses will enter 2021 with no or little cash reserves.
- COVID-19 has created market disruption for most industries. The impact will continue to distort markets during 2021. This increased volatility will continue to result in a complex and challenging environment for most businesses.
Businesses need to be planning for 2021 now. Prioritising this will be difficult for many businesses who have had, by necessity, a laser focus on the COVID-19 fallout in 2020.
Budget forecasting and cash flow planning will be critical to business survival in 2021. Cash flow is the lifeblood of every business. I have seen many profitable businesses fail due to insufficient cash flow, planning is critical to ensure your business can survive this financial crisis.
For assistance with formulating a business plan or to undertake a robust health check for your business, please contact your local Bentleys advisor. We will be happy to assist with the process.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.