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Cash Flow and COVID

Cash Flow and COVID

There is no question that the Federal and State Governments have been assisting businesses with cash flow during the COVID crisis. We also know that many businesses had been struggling to stay afloat prior to COVID. These so called ‘Zombie Businesses’ have been kept alive by stimulus measures and other government support programs, despite their increased likelihood of failure.

With COVID financial Government assistance drying up, there are major concerns as to the lifespan of the businesses that were already struggling.

The Australian Bureau of Statistics has recently released its review in November 2020 of the length of time business operations could be sustained by currently available cash.

As detailed above, of particular concern is the Accommodation and Food Services sector, reporting that up to 50% businesses likely to experience cash flow shortages in the next 3 months. The impacts are further exacerbated by the fact that, as summer approaches, international borders remain shut and the usual influx of travelers and overseas students injecting billions into the economy are nowhere to be found.

Other sectors likely to experience cash flow shortages include Arts and Recreation, decimated by the extended closures of venues and performance spaces. Construction, Manufacturing and Wholesale Trade.

Business disruptors arising from the pandemic include:

  • Increasing speed towards a cash less economy;
  • Critical stock shortages as factories take time to wind back up;
  • Spike in prices in the second hand car and plant & equipment market again due to shortages of new stock; and
  • Reassessment of commercial floor space needs by businesses operating from offices both in CBD’s and business parks.

 

For further insight, read the latest issue of the SV Partners publication, The Insolvency Review here:

Article written by Tim Brace (Associate Director) – Melbourne

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