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Australian Welding: September 2020
Tips for Managing Cashflow Post COVID-19 In the wake of the COVID-19 pandemic, small to medium businesses are facing financial fragility, caused by a decline in consumer demand as restrictions continue. The full extent of the pandemic may not yet be known, but it is already having an impact on almost all industries, including the welding and fabrication sector. In the coming months, ensuring positive cashflow will be essential.
Gavan Ord, Manager of Business and Investment Policy at CPA Australia, said the widespread impacts of COVID-19 are unprecedented. “Most businesses have had their cashflow impacted by the restrictions imposed to control the spread of COVID-19,” said Ord. “Usually smaller businesses have less fat in their cash position and can find it more difficult to raise extra cash, therefore they tend to feel cashflow pressures sooner than larger businesses.” According to Ord, there are some simple techniques for businesses to focus on – review, change and plan – to manage cashflow and support the organisation into the future. Review The first step to achieving a positive cashflow should be to take a step backwards and understand the overall situation. A weekly cashflow
forecast provides a constant review of a business’ current financial position. If the business does not have an accounting software, an accountant can assist with this review.
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After the initial financial assessment, businesses should conduct a ‘whatif?’ analysis to measure how certain events like further restrictions or reduced projects after a lockdown may impact cashflow.
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After these two steps have been completed, a suite of other steps can be conducted to improve a business’ cashflow position, including: • Focusing attention on sales that are paid at the point of purchase or paid early • Quickening the collection of outstanding debts, including following up with debtors before the due date rather than waiting until the debt is overdue • Reducing stock orders, particularly stock in low demand
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Seeking an extension to any payment terms with suppliers Considering introducing an up-front deposit requirement for critical items required by customers Focusing on marketing products that are more likely to be sold quickly.
While there is government assistance, and banks and some suppliers are offering payment deferrals, Ord said the importance of constantly reviewing cash on hand is paramount for the future. “While taking advantage of those deferrals can improve your cashflow in the short term, the amounts owed still have to be repaid at a later date. Be sure that you can repay those debts in a few months’ time – you don’t want to set yourself up for a bigger cashflow problem,” said Ord. When conducting an analysis of the
