Covid-19 – Essentials for Business
We pride ourselves on our commitment to our clients through thick and thin.
With the Covid-19 pandemic rapidly impacting business, we thought it was important to update our clients on developments along with useful tools.
The government has already signalled that there may be additional stimulus in the coming months and we’ll continue to update you.
For some of our clients, budgets prepared for the 2021 year will already be redundant. For many, they won’t have thought about a budget at all.
It is more important that ever to have a budget in place. This financial roadmap will likely change throughout the course of the year, and probably more than once.
For some clients, budgeting is an entirely new thing. We know that most small business don’t have one. Now is absolutely the time to put one in place. Businesses must plan and plan well.
Xero has a budget manager function that allows you to put in detailed information about revenue and expenditure for the year ahead. You can see a quick video of Budget Manager here. More detailed information on inputting a budget is available on this link here.
We are able to offer budgeting services to our clients and in recent days we have already begun putting these in place. Please don’t hesitate to contact us if you want to discuss this further. We are here to help you.
Once you’ve completed a budget, we are able to model your cash flow for the remainder of the year.
Budgets are based on when you issue an invoice or when you’re likely to receive a bill. Cash flow covers when you are likely to get paid and when you are going to have to pay your suppliers. It also includes income tax and GST payments.
During such uncertain times, it’s vitally important you consider the following:
- What are your current cash balances?
- Do you have an accurate position on your accounts receivable (debtors)? What is overdue? How fast can you collect this money?
- What is your cash burn rate? i.e. the amount of money you will spend to keep your operation going every month.
- Is your revenue forecast too optimistic given the outlook for your business?
- What are your variable expenses versus your fixed expenses?
- Can any payments be extended? e.g. rent, business loans, suppliers.
- Is additional finance available? Can you talk to your bank about borrowing to ease cash flow?
- Are there any surplus assets that you can dispose of now?
- What expenses can be cut now, both in the business and personally? You need to consider personal expenditure as you may need to tip more of your own money into the business.
- Have you got a communication plan for your team to ensure that they know about the plan? It’s important to be transparent in uncertain times.
The next step is to do the numbers. There are some great tools available for cash flow forecasting. We recommend Float as a cash flow tool and we think it’s the best around. One of it’s best features is the ability to model scenarios e.g. revenue drops 20%, 40%, 60% and so on.
The team at Float have extended free trials of their software up to 31 May 2020. This is an excellent opportunity to trial the tool at no cost to see how it can benefit you. We guarantee that you can significantly reduce your anxiety by having a cash flow tool in place.
If you want to know more, please get in touch. We are actively helping a number of clients model scenarios at this time.
Make sure you are communicating regularly with your team. They will be anxious and you need to keep morale high. When employee engagement goes down, it will impact your business.
Laying off staff may be a reality for some, but have you thought about reducing hours as an alternative? It’s not great but it’s better than laying off staff.
Some businesses are not going to survive this disruption. There’s no way to sugar coat that message. As a Director of a business, you must be conscious of cash flow and recognise early if you business is in trouble. The legal expression for this is “trading whilst insolvent”. That means you simply don’t have enough cash to meet your outgoings as they fall due, such as wages and salaries, GST and suppliers. Bank debt may be another concern.
The Institute of Directors have pulled together an excellent checklist to help Directors assess their own unique circumstances. You can access that by clicking on this link.
If you are going to face this situation, please contact us immediately for help. You need to be assured that you protect your position as early as possible. Procrastination is not your friend in this circumstance.
Xero Assistance Programme
As Xero customers, our clients, their team and family members all have access to counselling and support through the Xero Assistance Programme. You should not hesitate to use this service. It is absolutely free and confidential. You can read more by clicking here.