As the world wonders what the full impact of coronavirus will be, small business owners can start taking action to best shield their livelihoods from the worst of it, writes Joe Kaleb.
Prime Minister Scott Morrison has warned Australians to prepare for a coronavirus “pandemic” as the government implements its emergency response plan. In New Zealand, the Ardern government is due to do much the same.
Small businesses also need to have a plan to deal with the fallout from the virus which includes a drop in customer and sales numbers, disruption to supply chains and, ultimately, cash flow shortages.
With that in mind, here are 10 tips to manage the risks of the virus to your business.
Many business owners may not realise that their product or service relies on parts or components from China, so understanding your supply chain is a critical first step.
If your business relies on a supplier from an affected region in China, now is the time to seek alternative suppliers
Have a plan to deal with disruptions to the supply of your products and services.
You may need to scale back production for some parts and stock.
Rethink your marketing strategy and how you can change customer behaviour until the crisis passes.
Consider ways to diversify your customer base particularly where you rely on customers from China and other countries most affected by the virus.
For example, if you’re in the tourism and hospitality industry, consider promoting your products and services within your country as locals will be more likely to consider domestic travel options than ever before..
You need to know in advance what impact a slowdown will have on cash flow.
For example, review and adjust your cash flow forecasts to determine what affect a reduction in sales will have on your ability to pay suppliers and repay debt – click here for access to my cash flow calculator, which can be used for this purpose should you not already have online accounting software that can handle this for you.
Ensure that your financials are kept up-to-date so that you monitor profitability, stock levels, and debtors and creditors balances on a timely basis.
As a prime example, MYOB’s online accounting software has all the features you need and solutions for every stage of your business, including automated invoice reminders, customisable invoice templates and all the reporting you need to accurately track cash flow and more
Timely and honest communication with your customers and suppliers is important.
Customers need to be made aware of any issues with the delivery of your products and services and what contingency plans you have in place.
Renegotiate payment terms with suppliers if necessary and talk to your bank if you are unable to meet your loan commitments.
Review your debtors and, if necessary, offer discounts for early payment.
You could look to seek extensions from your landlord if unable to pay the rent on time, as well as consider entering into payment plans with the ATO for BAS (Australia-only) and tax debts (in New Zealand, you’ll need to seek advice from the IRD).
Check with your broker or insurance company if you can make a claim on your business continuity policy for any financial losses suffered.
In case of prolonged staff absences, cross-train your key staff so that your business can continue to function at all times.
Look at all the costs of your business and reduce discretionary and non-essential expenses.
Fixed costs such as wages, rent, utilities, financing costs and tax liabilities are not affected by a decline in sales and need to be properly managed.
It’s very important for small businesses already impacted, or likely to be impacted by the coronavirus, to seek timely professional advice – don’t sit back and hope this will all go away soon.
This article, while written by accredited tax agent and chartered accountant Joe Kaleb of Australianbiz, does not constitute financial advice. For advice on your specific situation, MYOB recommends engaging a qualified professional directly.