Surviving a Pandemic as a Small Business

Business, Journal,  Journal,  Principals

It’s one thing to study economics in theory and another to experience first-hand the furious and unrelenting pace that COVID-19 restrictions have had on the nation. Many businesses found themselves having to operate in a significantly diminished capacity while others had to shut their doors overnight. For obvious reasons, many businesses quickly descended into financial chaos and stress as revenue started drying up and fixed costs continued to pile up that could not be turned off swiftly and easily.

Fast forward to June, and you’ll discover many have been hanging on by a thread. While the individual circumstance of each business demands a tailored approach in response to this difficult economic environment, here are some strategies that may help your real estate business on its way to recovery:

1. Modify your business model: Many businesses have proved their creativity and versatility as they modify their business models quickly to adapt to the lockdown environment. Many cafés and restaurants quickly geared up their takeaway service when they could no longer allow customers to dine-in. Microbreweries that would otherwise be designing their next boutique bottle of gin started to produce hand sanitiser. This is the time to exercise your creativity to come up with revenue-generating ideas by modifying what you normally does to maximise the inflow of cash. No one expects perfection – most consumers are very understanding and forgiving – so don’t let perfectionism stop you from being agile and implementing your plans quickly. Speed is key in times like this.


2. Cut fixed costs quickly: Go through your fixed costs to see if they can either be cut or deferred with the emphasis on people and rent costs. These are normally the biggest ticket items. Industrial relations rules have been modified that may make it easier to stand people down. Both the State and Federal Government have published various codes and guidelines to facilitate landlords and tenants to negotiate rent waivers or deferrals. If you have a loan, negotiate with your bank and ask for a moratorium on the loan repayments and capitalisation of interest during the COVID-19 period. Get onto these now – they can make a huge difference to your business’ ability to survive. Once the biggest impact items have been dealt with, the next step is to cut all non-essential expenditure that doesn’t bring in revenue; unfortunately, the luxuries must go until the business stabilises.


3. Stockpile cash: Even if you have cash reserves to pay expenses, if there’s an opportunity to defer the payment and the cost of deferral, if any, isn’t prohibitive, defer the expenditure and stockpile as much cash as possible. The Australian Taxation Office (ATO) and Office of State Revenue have been helpful in allowing tax liabilities to be deferred. While things are starting to look up, many economic commentators are predicting the real fallout may materialise after the stimulus measures introduced by governments come to an end. Since the lack of cash to pay debts when they fall due is ultimately what brings down a business, having a good level of cash buffer provides a margin of safety in case things get worse rather than better.


4. Keep a tab of deferred expenditure: Deferral means just that – the expenditure is only deferred, not waived. Make sure you keep a tab of every expense that’s been deferred to ensure you make provisions to pay them back at a later stage. If things turn out to be not as dire as expected, you should have sufficient cash reserves to pay these in the future. However, if you find yourself starting to use cash from the deferred expenditure to keep the business afloat, the next point will be critical to how you manage your business going forward.


5. Project your cash flow: You may have been lucky in the past that your business was generating a sufficient and constant stream of cash flow. So, you didn’t have to keep a close eye on it in the past. However, in uncertain times, projecting your cash flow on a rolling basis for the next 3-6 months is a critical tool to ensure you can manage your cash flow effectively. This cash flow projection model should take into account deferred expenditure, which will prove that your business has the ability to continue trading and can repay all deferred costs – or not. If your projection indicates a period of cash deficit may be looming, it’ll give you time to organise finance or renegotiate payment terms of those deferred expenditure to enable you to trade through this period. On the other hand, if the projection shows the business may no longer be viable in the long run, it’ll buy you time to plan your next steps rather than being forced into a position on someone else’s terms. If you don’t have the internal resources to compile the cash flow projection model, ask your external accountant for help – they should have templates and software to do this efficiently for you.


6. Continue to access stimulus measures: Even if you weren’t eligible for JobKeeper in the past, you’re allowed to keep monitoring your turnover and apply for the payments prospectively if you satisfy the decline in turnover test in the future. Also, if you were eligible for the Cash Flow Boost PAYG Withholding credits, you should automatically become entitled to the second lot of additional credits from June 2020 to September 2020. Check your Business Activity Statements (BASs) to ensure the amounts are credited to your BASs.


7. Consider to cease trading: I know it’s unthinkable but if cash flow projections show your business is likely to reach a crunch point where no amount of planning could keep it afloat, you may need to consider the option of ceasing trade. Of course, there’s a temptation to bury your head in the sand, keep trading and see what happens – unfortunately, business has a way of triggering the gambler’s mindset in many people. However, if it’s clear from the cash flow projection model that your business is heading to the point of no return, keeping it going may cause you to throw good money after bad, which could be more detrimental to you in the long run. If you’re not sure you’ve reached that point or don’t know what to do next, perhaps it’s time to enlist the help of an external business recovery and insolvency practitioner who can give you some solid options to consider.


Taking the above steps doesn’t guarantee your business’ survival, but following a more scientific and proactive approach will likely give you a much better result than a haphazard and reactive one.

Important disclaimer: No person should rely on the contents of this article without first obtaining advice from a qualified professional person. This article is provided on the terms and understanding that the author and BDO Services Pty Ltd are not responsible for the results of any actions taken on the basis of information in this article, nor for any error in or omission from this article. The article is provided for general information only and the author and BDO Services Pty Ltd are not engaged to render professional advice or services through this article. The author and BDO Services Pty Ltd expressly disclaim all and any liability and responsibility to any person in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article.