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Financial adviser’s solution for businesses facing forced shutdowns

Preparation, strategic decision-making and adaptability are key to surviving – and thriving, explains financial adviser Helen Baker.

Forced Shutdowns

Don’t let a forced shutdown become permanent for your business. A strategic approach before and during a shutdown will substantially stem the resultant losses. Forced shutdowns have become the norm during the pandemic. Yet they are not new: natural disasters, IT and power outages, industrial action and more can force businesses to close their doors.

As a financial adviser, this is the critical checklist I’ve compiled that will offer any business a productive means of managing risk, both in preparation for future shutdowns and minimising the damage once they arise.

Pre-shutdown preparation

Have a plan: Prevention is better than cure. While most shutdowns can’t be foreseen, your response to them can.

Devise a shutdown plan that covers:

  • Remote working systems and processes.
  • Backups for power or IT failures.
  • Data backups and security safeguards against cybercrime.
  • A review of legal and contractual obligations.
  • Employee training and support on the above.

A pre-determined plan makes forced shutdowns easier to navigate, your response faster and more effective, and ultimately, delivers better outcomes for all stakeholders.

Insure against losses: Sadly, many business owners only discover they were underinsured, or their policy did not cover an event, when making a claim.

Review insurances annually to ensure they offer sufficient coverage. Consider too the value of assets covered, which may have increased or multiplied since the policy was obtained.

Should you need to make a claim, do so as soon as possible – it can take weeks for claims to be processed, prolonging the business’s hardship.

Weigh financial versus business costs: Cutting outgoing costs is a logical step but consider the long-term implications first. For example, how will staff lay-offs affect key relationships? Will the business be able to recruit again later? A third of small and medium-size enterprises reported vacancies in July even as lockdowns hit multiple states.

Sometimes sacrificing short-term profit to retain staff is more valuable than the immediate savings of letting them go. The same applies to all expenses: avoid delaying payments or cutting necessities that will attract penalties or problems later. Weigh up the immediate pressure from shareholders/owners to make sacrifices against the business’s ability to resume normal trade.

Diversify: COVID-19 has clearly demonstrated the impacts of a sole reliance on offshore supply chains, single routes to market and revenue channels. Minimising risks means diversifying exposure points.

Explore methods for diversifying supply chains, routes to market, revenue streams and customer markets. That way, if shutdowns hit one, you still have others to fall back on.

This work is best done with considered thought and planning, not on the fly in a crisis.

Actions during shutdown

Get paid faster: Conserve cash flow by getting payments in quickly. Consider introducing up-front payments, reducing payment terms or offering multiple payment methods. A ‘pay now’ button on digital invoices is surprisingly effective.

Chase unpaid invoices as well. It’s easier to secure payment for sales already made than generating new sales. Ideally, though, your business is continually on top of this, meaning your cash flow was strong prior to the shutdown.

Seek support: Don’t let cash flow suffer simply by not seeking help when needed. All three levels of government offer disaster support in the form of cash grants, wage subsidies, fee waivers, tax and rates deferrals and so on. Industry associations may also offer grants and other support.

Most major suppliers offer hardship provisions, or you can negotiate payment plans, to conserve cash.

Payment deferrals are another option but read the fine print – they may work out more expensive overall. Plus, deferrals can impact credit ratings, limiting the business’s future ability to access finance.

Embrace discounts: When it comes to discounts, you don’t get if you don’t ask. Interest rates are at record lows, so are you getting the lowest rate possible? Ask suppliers and utilities for better like-for-like pricing. Review rents in the face of changed conditions.

Consider whether new borrowings are feasible for purchasing new equipment, as combining cheap loans with supplier discounts can deliver substantial savings.

Explore discounts for your customers too. Slightly lower prices coming in are still better than no money at all.

Use downtime wisely: Time-poor business leaders often get stuck working in the business rather than on the business. Forced shutdowns are a chance to change that. Attack jobs languishing on the backburner. Engage with key clients and personnel. Explore improvements to product, service, pricing and marketing.

Consider redeploying staff instead of standdowns: can they create social media content, pack products or upskill with short courses?

Don’t lose hope

Forced shutdowns aren’t enjoyable, but they need not be terminal. Preparation, strategic decision-making and adaptability not only help businesses survive a shutdown, but also thrive out the other side.

Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide.

Note this is general advice only and you should seek advice specific to your circumstances.

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