December 16, 2021

Managing Cashflow Post-COVID

In November 2019 I authored an article entitled ‘Surviving the Christmas Cash Flow Hangover – A Retail Focus’ and in March 2020 I authored an article entitled ‘Managing Cashflow following a Disaster’.

In both those articles it was discussed that the December Business Activity Statement is often the largest one for the year due to the higher sales that Christmas generates, which results in a large GST bill and a suitably high pay-as-you-go instalment for the same reason given additional staffing required at this time.

With COVID lockdowns easing and the government stimulus coming to an end, there has been a flurry of consumer and business activity leading into the Christmas period. For this reason, it is anticipated that sales will be greater than usual for this BAS quarter, not to mention the increase in wage costs being incurred in re-establishing businesses.

So, if you wish to successfully navigate the re-establishment of your business and manage cashflow accordingly, you need to:

  • Know your breakeven point,
  • Prepare a cash flow statement,
  • Have a plan.

What is your breakeven point?

Your breakeven point is the level of sales that equals variable costs (for example, trading stock) plus your fixed overheads.  This is the most important number in your business and should be the key figure you use to determine the viability of your business.

By knowing breakeven point, you can easily determine what level of sales you need on a monthly or weekly basis to ensure you are not trading at a loss.

Will you have enough Cash?

A critical element of any plan involving your business is a cash flow forecast.  A cash flow forecast estimates the amount and timing of cash coming into and leaving your bank account.  Knowing the time of expected cash inflows and outflows will help you make the important decisions around stock turn and staff levels.

It will also assist to ensure that you are able to pay your debts as and when they fall due and that as a Director you do not run the risk of trading whilst insolvent.

What’s your plan?

As you approach one of the busiest times of the year in your business, take a moment to think about what trading is going to be like in the lead up to Christmas, before you rush into increasing your stock and staffing levels.  This is an ideal time to review your labour budgets and sales forecasts.

You should also be mindful that your business then enters into what is traditionally a loss making period during January and February. So, if the anticipated profit is not achieved from the Christmas trading period, consideration needs to be given to working capital requirements of the business to enable ongoing trade.

This can be achieved from the preparation of a cashflow forecast which will assist in determining the cash shortfall that may arise during the upcoming months.

Once the working capital requirements are determined, business owners need to consider how they will finance said working capitals requirements.

SMEs are traditionally funded through mortgage finance. However, what if the business owner has limited capacity to borrow additional funds to cover their working capital requirements. There are a vast number of alternative lenders in the market that provide a variety of loan products to SMEs.

However, such alternative lenders are generally more expensive than tradition mortgage finance, so such finance needs to be factored into the businesses cashflow forecast to ensure that the business will generate sufficient cash flows to repay the funds borrowed and continue to operate at a profit.

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