Will your business survive without the government support measures? Andrew Spring, a partner with national insolvency and business recovery firm Jirsch Sutherland, provides some helpful advice on how to prepare and plan for surviving beyond September.
With 72 per cent of businesses having taken a revenue hit as a result of COVID-19 and 73 per cent accessing government support measures* such as JobKeeper, deferred loan repayments and relaxed insolvency laws, many business owners should be asking, “Can my business stand on its own two feet without these crutches?”
Jirsch Sutherland partner Andrew Spring recommends they plan now how their company will cope when the support measures end in late September. “By getting on the front foot, owners can give their business a better chance of surviving or wrapping up with a better outcome,” Spring says. “This means assessing the impact of the pandemic on your business and the changes required to get it back on the right course, including getting your accounts in order and calculating whether you can meet taxation and superannuation obligations and pay creditors.”
While Spring acknowledges that company owners know their strengths and abilities, they should also know when to call on qualified professionals such as accountants, financial advisers and business restructure and insolvency practitioners to benefit from their expertise before it’s too late.
8 questions for business owners and directors can ask now
To help owners and directors assess their business and its chances of survival beyond September, Spring advises they ask:
- What is my cash-flow situation like now and what will it be like after stimulus ends?
- Will my revenue streams recover and are there opportunities for new streams?
- Can I afford to keep staff on post-JobKeeper?
- Can I meet deferred payments? (e.g. rent, mortgage)
- Do I have the funds to pay tax when it falls due?
- Do I have enough money to meet the next superannuation payment?
- Do I want to hang on or have I lost my passion for the business?
- Are my personal assets at risk? (e.g. personal savings, house, car)
“It’s crucial to understand that personal guarantees don’t fall away under the support measures. Business owners should be aware of ‘sleeping personal guarantees’ that will awaken later, such as leases, make-goods, trade credit applications, finance, and credit card debts. Any debt deferral decision may exacerbate liabilities, which could put personal assets at greater risk if the business is ultimately unable to meet the liability,” says Spring.
Key planning tips
Spring recommends the following 10 tips for business owners and directors to prepare for the post-stimulus environment.
- Plan: Plan for the immediate post-stimulus environment and the longer term. Ensure you have a contingency plan should the economy be hit by a second coronavirus outbreak and revisit your plan to ensure it remains relevant to your business and the market.
- Calculate: Assess your current and projected cash-flow.
- Assess staffing needs: If your business has experienced change, it’s essential to reassess your staffing needs.
- Reduce costs: Where possible, cut costs to minimise further impact on your cash-flow.
- Communicate: With your staff, customers, suppliers, creditors.
- Renegotiate rent/lease terms: If you will struggle to pay your rent, speak with your landlord now and renegotiate existing arrangements.
- Funding: Engage with your bank/lender to discuss funding needs or repayments/interest rate relief. Or seek alternative finance.
- Give yourself breathing space: The Safe Harbour and Voluntary Administration regimes are designed to provide companies and their directors with breathing space and can secure leniency from creditors, buying you time to ‘right the ship’.
- Reinvent yourself: Prepare for the ‘new dawn’ – whether it’s restructuring your business or restarting with a new model, strategy or market post COVID-19.
- Put your hand up: If your mental health is being impacted by your financial stresses or the need to let staff go, speak with a trusted adviser or contact Beyond Blue or Lifeline.
“If you have come to the decision that your business may not survive beyond September, it’s important to act now rather than wait until you risk trading insolvent. A business turnaround and insolvency practitioner can explain whether a restructure, or a regime such as Safe Harbour or Voluntary Administration can achieve the best outcome for you, your shareholders, staff and creditors,” explains Spring. “And place you in a better position for a fresh, new start.
“As a turnaround and insolvency specialist, the most important advice I often give my clients is to seek help sooner than later.”
*Australian Bureau of Statistics (ABS)