8 strategies you could use to manage business cash flow during COVID-19

How to manage cash flow during COVID-19 | Prospa

The coronavirus crisis has put the squeeze on many small businesses with unprecedented speed. Here are some ways you might be able to help protect your cash flow.

In such uncertain times, many small business owners are already working hard to do what they can to protect their cash flow, their businesses, their staff and themselves.

Here are some strategies that could help:

1. Apply for any government aid you’re eligible for

The Federal Government has already announced more than $67 billion in direct financial aid  available to small business owners and sole traders, as well as billions more in indirect financial support.

Some key initiatives are:

  • Increased and accelerated income support for sole traders and the self-employed who can demonstrate a significant downturn in businesses as a result of COVID-19.
  • Wage subsidies for apprentices and trainees.
  • From 28 April 2020, tax-free payments of up to $100,000 for small businesses that employ people, with the sum linked to how many staff they have.
  • Tax incentives for anyone investing in assets for their business.

Each state and territory government has also announced significant financial packages for small businesses, mainly in the form of grants, tax cuts and waivers, and loan facilities.

In NSW, for instance, those businesses who lodge and pay payroll tax monthly and whose total Australian wages will be no more than $10 million for the current financial year, will not be required to make payment for the months of March, April or May 2020. In Victoria, businesses with a payroll of less than $3 million will receive a payroll tax refund imminently.

A spokesman for accounting firm BDO urges small businesses to not dawdle when it came to taking advantage of the initiatives.

“As certain incentives in the various economic packages will only be available for a short period of time, businesses should consider taking action as soon as practicable,” he says.

“Taxpayers eligible for grants should also ensure that their postal addresses with their respective State Revenue Offices are correct so that appropriate payments can be received as soon as possible.”

2. Contact the ATO to discuss relief options, where needed

The ATO has urged any small business that is experiencing cash flow disruptions because of COVID-19 to get in touch to discuss relief options.

Commissioner of Taxation, Chris Jordan, says the ATO will work “shoulder to shoulder with businesses to assist them through this difficult period and do what we can to ease the pressure”.

“Once you contact us, we’ll tailor a support plan for your needs and circumstances,” he says.

“Support measures could include deferral of some payments, quicker access to GST refunds, and options to enter low interest payment plans for existing or future tax debts.”

Some of the options available include:

  • Getting up to an extra six months to pay taxes due through BAS, including PAYG instalments, income tax assessments and fringe benefits tax assessments.
  • Allowing businesses on a quarterly GST reporting cycle to move to monthly, getting them quicker access to GST refunds.
  • Letting businesses vary their PAYG instalments for the March 2020 quarter to zero and claim refunds for instalments made in the previous two quarters.
  • Cancelling any interest or penalties that have been incurred on tax debts from 23 January 2020 and onwards.
  • Other tax relief measures for people facing serious and exceptional circumstances.

The ATO measures will not be applied automatically, meaning you have to contact the ATO to be eligible. You can reach their emergency support hotline at 1800 806 218.

3. Chase your unpaid invoices

These are difficult times, it’s important to work with your customers and be flexible with unpaid invoices. If your customer can’t pay the full amount due, try to get a partial payment or create an instalment plan.

You can start by chasing late payments with a friendly email, followed by a phone call. If that is not getting you anywhere, try asking to talk to the person who actually makes the payment and getting a promise to pay by a particular date.

Many energy companies also offer extensions to payment terms for unpaid energy bills for commercial customers too – contact yours to find out if you qualify.

4. Seek relief on rent and mortgage

Late last week, Adelaide development firm Commercial and General announced that it would suspend rents for small business tenants in its properties for three months.

Executive Chairman Jamie McClurg called on other commercial landlords to follow suit to help small businesses that were hurting, a call that has been endorsed by the state’s Property Council.

“They need us to back them to make sure they’re still here when we get through this,” McClurg says.

“It’s going to take a collective effort to make it happen and it starts with all of us as individuals.”

Although this has not yet translated into a mass rent-relief movement, your landlord might be open to pausing or at least temporarily reducing your rent.

The NSW Small Business Commissioner cautions that your landlord doesn’t have to agree to rent relief.

“However, if you have a good relationship with your landlord and you’ve met all the other lease terms, it may be worth trying to negotiate a rent reduction for a specific length of time,” the Commissioner says.

If you’re a homeowner, also keep in mind that many banks are offering mortgage holders affected by the COVID-19 downturn an option to pause mortgage payments for up to six months.

5. Review your staff structure

For many business owners, the thought of having to let staff go during a downturn is a major source of stress.

Government support packages, particularly the Federal Government’s cash flow boost of up to $100,000 for employers, are available to help support businesses to keep staff on.

It is worth keeping in mind that there are a number of other options available to employers short of termination, such as:

  • Encouraging staff to use their annual or long-service leave.
  • Asking staff to take unpaid leave.
  • Discussing temporary salary or wage reductions with staff.
  • Negotiating job-sharing arrangements to move full-time staff to part-time.
  • Temporarily standing down staff, with a view to rehiring them as business improves.

However, a spokeswoman for lawyers Hall and Wilcox says it is crucial you comply with your usual legal obligations when restructuring your workforce.

“There are a range of options available in order to lawfully secure business continuity during the current economic climate,” she says.

“Employers should obtain legal advice to discuss their options and to ensure that their chosen course of action is compliant.”

6. Cut all the overheads you can

Rent and staff costs may be among the biggest overheads for many businesses but far from the only ones.

Now is a prime time to review some of the regular expenses your business incurs and separate out the must-haves from the nice-to haves.

One place to start is with any online software or subscription services you are signed up to that aren’t essential in this period. Cancelling them can reduce your outgoings and keep your cash flow healthier.

Other ideas are to jump online and do price comparisons on your major bills and shop for a better deal.

You could start with your internet and phone provider and then move onto your insurance and energy bills.

Comparison websites are a great tool for finding better value deals, but don’t forget that you can also take any deals you find online to your current provider to see if they can match or better it.

7. Consider early access to your superannuation

The Federal Government has announced changes to the superannuation scheme to allow some people in financial stress as a result of the COVID-19 downturn to access some of their super.

Eligible people include sole traders who have had their business suspended or their revenue reduced by 20% or more since the beginning of the 2020 calendar because of COVID-19.

If this is you, you can apply online through myGov to access up to $10,000 of your existing super this financial year and another $10,000 next financial year.

8. Look for ways to find new income streams

Crises have a long history of prompting innovation and this crisis is no different. There are scores of examples of small businesses here and abroad that have reacted to the unprecedented disruption by pivoting to run their business in entirely new ways, while making sure they’re complying with government social distancing guidelines.

Think bookstores offering home delivery, gyms offering virtual classes or restaurants offering new takeaway menus.

The information in this post is provided for general information only and does not take into account your personal situation. Nothing contained in this post constitutes advice or an endorsement or recommendation of any kind by Prospa. Any links to third party websites are strictly for informational purposes only. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.