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Three tips for businesses struggling to cope during COVID-19

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Many Australians businesses who were quick to let staff go following forced shutdowns in March were already struggling with their cash flow.

According to new research by financial platform money.com.au (not affiliated with Money magazine), a survey of more than 260 businesses found more than half of owners had already forgone or delayed paying themselves this year due to cash flow problems.

Of these, 17% had forgone paying themselves altogether during some pay cycles, 30% delayed their payment and 17% paid themselves in lump sums when the business had cash.

coronavirus small businesses struggling

For those in business a year or less, 100% missed paying themselves at some point, 86% said they had occasionally delayed paying themselves during employee pay cycles, and the other 14% said they often delayed paying themselves.

Businesses that had been around longer had also either occasionally or often delayed paying themselves when they paid their staff.

Two-thirds of struggling businesses saw this spill into their personal lives.

Top staff earned more than the owners in half of businesses, while in small businesses this rose to two-thirds.

Financial adviser and spokesperson for money.com.au Helen Baker says owners may earn less than their employees because they have taken a leap to hire a highly qualified employee before they are in a financially stable position to do so.

"They might have an expectation they will find the income to cover the high salary while taking a dip in their own income," she says.

According to Baker, businesses that are struggling need to consider whether they are not profitable or are not managing their cash flow - because there's a difference between profit and cash-flow she says.

"Those business that have been struggling with longstanding cash flow issues prior to the pandemic will be struggling to stay afloat during this time," Baker says.

"The government's measures may assist the business slightly, but this is likely to come at a cost - once again, seeing business owners sacrificing their own pay."

Here are three tips for struggling businesses.

1. Consider if you are still in the right industry

This is a good time to look at the business you are in and consider the prospects. For example, the construction industry was not part of mandatory shutdowns.

"They are long contracts but the fallout might be in the future," Baker says.

"If you're building houses and people are still not working, they're not going to buy houses and take on debt."

While people are still buying groceries, is it the groceries they would have bought before?

Some companies are pivoting successfully and Baker says she's seen gin companies make hand sanitisers and event companies move themselves online, streamline staffing and avoid venue costs.

"They can be more profitable because they cut fees and charge a lower fee and may also become attractive so more consumers," she says.

"The manufacturing side might be an opportunity in Australia - people are saying they are happy to pay a little more if they bring jobs back to Australia."

2. Check all your costs

While you are using the stimulus to help cash flow, Baker suggests people take the time to look at negotiating all your contacts with suppliers and landlords.

"When we've now demonstrated people can work from home, do people still need the big premises or can rental costs be saved?" she asks.

"Do you still have the right number of staff on your books?

"There's often pressure to keep growing a business but as you keep taking it up a level you take a hit to achieve that - either with more staff or bigger premises and it takes a while for revenue to catch up," Baker says.

3. Make the most of the stimulus packages

While you don't have to pay GST and PAYG will find a quarterly refund on your BAS, look at using this as a buffer to stem cash flow issues in the future

The Government relief now can be used as to hold the business steady as they never have to be paid back, Baker says.

She also suggests using the instant tax write off as an opportunity to get a write off for something they need to change the way they do business, and the government is also guaranteeing 50% of loans.

Maybe businesses could also look at using some of the payments to retrain staff.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Julia Newbould is a financial writer and commentator with a background in journalism. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.
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