How business planning can help cash flow

Why we expect a lag before we feel the true financial impact of COVID-19

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  business to varying degrees. This experience leads me to conclude the worst of the cash flow challenges are yet to be seen.

A lag in the financial and cash flow impact of COVID-19 is likely to be due to:

1. 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.
2. Many of the state government assistance packages are now ending. Very few will continue through into 2021.
3. Banks and financiers have agreed to a temporary 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.
4. 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.
5. 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.
6. 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.
7. 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.

Business planning tips to improve cash flow

To help businesses prepare for the calendar year, and to help foster business resilience in anticipation of the winding back of stimulus measures, I offer these fundamental business planning tips:

1. Gather your intel. Before you start planning for the next period, it is important to have a detailed understanding of your current business position. What are your business’s strengths and weaknesses? What impact has COVID-19 had on your cash flow? Have you consulted with your key stakeholders to identify any specific cash flow issues? A thorough financial analysis will go a long way to helping you make informed and effective decisions to support ongoing business solvency and profitability. This, coupled with a deep understanding of your market and changing environmental forces will place you in a good position to proceed through the planning process.
2. Envision a sustainable future. With a clear understanding of your position and available resources, you can start to envision how your business could advance or evolve to become stronger and more resilient. This could involve re-imagining your business’s future to be more in line with current market needs and changed customer behaviours. What opportunities are not being adequately met in your market place? What are your competitive advantages that could be leveraged to strengthen your position in the market? What is your most desirable market position that would set you apart from others and strengthen your competitiveness and profitability? How could you become a leader in your field, giving consideration to good governance, compliance and innovation?
3. Design a smart plan to support your success. As we are all operating within changed market conditions, many businesses have needed to review their business plans to adjust their business models, their products and services, or even their target markets. COVID-19 has triggered new levels of innovation and adaptation, and to that extent we are seeing exciting new advancements come to the fore across a multitude of industry sectors. As you design your business plan for short, medium and longer-terms, apply SMART (specific, measurable, attainable, relevant, and time-bound) objectives that will enable you to monitor and celebrate progress. Keep a close eye on your financials, and be sure to have the control measures (including cash in bank) and a business continuity plan in place to give you a cushion should another unforeseen event occur.

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 an effective business or business continuity plan, please contact your local Bentleys advisor.  We will be happy to assist.

We will continue to update our COVID-19 resource hub with important developments, so please return soon.

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.