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As you are aware, our business landscape is rapidly changing as the impacts of COVID-19 expand.  Not only are we concerned for the personal health (of business owners and employees), but also the direct commercial impacts of either Government restrictions, supply chain restrictions or the overall economic slowdown. 

In short, COVID-19 will impact many businesses, which could place their immediate future in serious jeopardy, and the duration of this impact is currently unknown.

 As part of any business risk management plan, there are numerous actions you should consider taking now, to prepare your business for COVID-19

Consider the impacts on your business

It is an important planning tool to try and identify any potential impacts on your business by having early discussions with your staff, key suppliers and key customers.  These stakeholders should be able to give you feedback on how COVID-19 will impact them, and in turn, how it will likely impact the operation of your business. 

Critical areas to consider include the following:

  • Staff availability – with new (and continually evolving) restrictions being announced, your employees ability to work at your premises will likely be curtailed, and you will likely need to consider if there is scope for them to work from home.
  • Sales – especially if you have no (or only a small) online presence.
  • Finance – consider recent bank concessions for loan repayment deferrals and verify if your cash reserves are adequate.
  • Supply chain – confirm how your suppliers are being impacted, especially those which operate from badly impacted parts of the world.

Consider updating your budgeting analysis with new assumptions

The assumptions you used to produce your current budgeted financials are very likely no longer accurate, given the landscape has changed for all businesses in the last 30 days or so.

 It is advisable to re-work your budgeting forecasts, even if this is done for shorter periods (ie. monthly rather than quarterly), given how rapid changes are happening.  It is also worth considering the inclusion of a range of possible previously "unthinkable scenarios", such as: a dramatic decline in sales over the next three to six months, or existing suppliers being unavailable to you (for an undefined period of time) and needing to find suitable replacements .

Consider how to improve cash flow

When you have completed the re-working of your budgets and determining the forecasted financial health of your business (including your cash reserves), if you have identified that your cash flow position is going to be critically impacted, you will need to act now to help improve the cash flows as soon as possible.

Start by preparing a cash flow forecast, including frequently updating the forecast as the financial impacts of COVID-19 unfold (ie. weekly).  This should give you some predictive forewarning of any cash flow problems so you can act fast to address them.

Other helpful tips to improve your cash flow may appear untraditional and radical, but these are unchartered waters which may force us to consider normally unusual actions.  Significant areas of your business to review will include the following:

 Manage stock:

  • Take steps to increase sales, especially stock with a shelf-life less than six months.
  • Consider promotions of these stock items and any stock which may be slow moving or obsolete.
  • Reduce stock orders of items that will be in low demand during the crisis.
  • Increase purchases of stock you think will be in high demand.

 Manage debtors:

  • Contact debtors and ask them to pay, even if the due date is still open.
  • If your debtors have cash flow difficulties, negotiate periodic payments.
  • Invoice as soon as products/services are delivered.
  • Produce aged debtor reports and chase them now.
  • Reduce debtors by encouraging customers to pay at time of sale, or even in advance.
  • Consider updating sales contracts to limit the ability of customers to cancel orders.

 Manage creditors:

  • Seek payment extensions, even temporarily.
  • Review supply contracts to determine what circumstances you can cancel orders, if necessary.
  • Contact the ATO and identify what payments may be deferred or put under an instalment plan.

 Review your borrowings

  • Contact any lenders about loan repayment concessions, or increase your overdraft facility, if necessary.
  • Review your own personal cash position to determine if you can inject cash into the business.
  • Consider introducing other investors to inject cash into the business.

 You should always consider any major decisions with your Accountants and Advisers to confirm whether any actions may be detrimental to your business in the recovery stage.

Consider whether your business may be entitled to recent Government stimulus concessions

Since 12 March 2020, the Federal and State Governments have released a large number of concessions and stimulus measures to assist businesses during the serious economic downturn projected to occur as a result of the COVID-19 pandemic. 

We recommend you consider whether some of the following concessions can apply to your business:

  • Increase of the Instant Asset Write-off threshold form $30,000 to $150,000 per asset;
  • Boosting Cash flow for Employers, by refunding PAYG withholding taxes up to $100,000;
  • Apprentice wage subsidy, to pay 50% of wages for 9 months to 30 Sept 2020;
  • Assistance for severely affected regions;
  • ATO is offering 6 month deferment of paying some taxes (incl. PAYG instalments, FBT, excise tax);
  • ATO is allowing businesses to vary PAYG instalment rates to zero for March 2020 quarter;
  • ATO is remitting interest and penalties incurred after 23 Jan 2020;
  • VIC Payroll tax (based on annual taxable wages up to $3M) are being waived;
  • VIC Land tax (for landholdings up to $1M) can be deferred;
  • SME Guarantee Scheme, where Government will guarantee 50% of new loans (up to $250,000) issued to SMEs; and
  • JobKeeper Payment scheme, where a $1,500 per fortnight (per eligible employee) wage subsidy can be paid to employers to pass onto employees they can keep on their books.

 We have produced numerous Tax Alerts to help explain these various measures and can be found on the Latest News Page of our website – click here


Seek any professional advice early

During extremely challenging times, regularly examine the following:

  • Can your business pay your creditors, your tax obligations, employment obligations and make loan repayments as they become due?
  • Does your business have adequate financial reserves to cover debts due and payable in the next few months?

 Any negative responses to these questions should prompt you to immediately seek professional advice and together review the financial health of your business.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.