Journal entry

Why the federal government’s coronavirus stimulus package won’t save your business

By March 20, 2020 May 13th, 2022 Reading time: 5 minutes

The federal government’s stimulus package won’t save your business. 

Increasing the instant asset write-off threshold, as well as some money to help keep staff on board, will be helpful, but as we see a panic-driven economy reeling from uncertainty around COVID-19, these are not measures that will prevent closures.

As a tax incentive, they also rely on businesses having the cash flow upfront to spend money regardless. 

In fact, while these measures are designed to encourage spending and growth to stimulate the economy, this is may not the best time for most SMEs to do so. 

Before considering even trying to take advantage of this package, business owners must rely on their fundamental systems and practices, and crucially, understand how this market will affect their revenue. 

However, first, don’t panic. 

SME owners can’t afford the panicked equivalent of a run on toilet paper. 

To survive you must avoid making panic-based decisions, and at the same time, keep your head out of the sand. 

So take a moment to step back calmly as there will likely be impacts on most businesses, and there are things everyone can do to protect themselves.

Understand your business

All business owners should understand the levers and drivers that keep their companies going. 

If you work in travel, or have a restaurant catering to the Asian tourist market, you would be right to be concerned about the impact the coronavirus will have on your revenue. 

Flight Centre has had to continuously reduce its full-year profit guidance (the amount it tells the stock market it is expected to profit) and managing director Graham Turner has said reducing costs is a priority along with a return to business as usual as soon as possible.

“Within this uncertain environment, our priorities are to reduce costs, while also ensuring that we and our people are ready to capitalise when the steep discounting that is underway across most travel categories starts to gain traction and as the trading cycle rebounds,” Turner said.

However, other industries may be affected differently. If you work in IT services or cyber security, there may be increasing demand for your services as many professionals opt for increased remote working. 

The key is to be aware and try to understand how and why your business may be affected.

If you are affected

In a perfect world, all businesses would hold 12 months of cash to underpin operations, but there are many different arguments and realities. 

I recommend that you understand your business’ cash cycle and have a contingency plan so you can last for at least a quarter (three months) with no revenue. 

Many small business owners take money out of their business straight away, not leaving enough of a buffer on the balance sheet to ride out a downturn in circumstances.

The essential thing to do is to focus on your business fundamentals.

Make sure you keep doing business

This sounds basic, but whatever your business does, keep doing it. Don’t get stuck in the hype and act irrationally. 

Don’t scapegoat coronavirus

It is important to budget correctly, analyse variance and understand if any issues are actually being caused directly or indirectly by the coronavirus.

It is sometimes easy to find a scapegoat when things are going wrong, but what you might find is that there could be underlying problems within your business. 

Strong businesses will be able to withstand down periods in a market.

Focus on pipeline and growth

If the current state of the economy could affect your pipeline, then you will need to pay more attention to it. If you’re likely to win less business, you might need to work even harder on attracting it. 

If there’s a dramatic impact on business, do you have a balance sheet strong enough to withstand it? And how long can you withstand it for?

Communicate with staff

Uncertainty is what’s caused the great toilet paper panic. 

Don’t let that happen in your business. Be open, clear and communicate with your team about any extraordinary measure you’ll need to take. 

You want to give confidence that any measures are short term. It is unlikely this pandemic and associated uncertainty will go on forever. We need to be patient in the interim, and still be ready to ramp up back to business as usual. 

If your revenue will be hit

In a downturn, your revenue might take a hit. If that is likely to happen to you, be realistic. 

Be aware of what is happening, and pay attention to who is impacted by the coronavirus, what the World Health Organisation’s advice is and even what broader public officials are saying. 

As an example, with public events such as the Melbourne Grand Prix being cancelled, more are likely to follow. That means if your business is in hospitality, travel and even retail, you will see an impact. 

The Grand Prix was cancelled last minute, but business owners should begin planning contingencies for other major events in the coming months. 

Emergency measures

If you really run into cash flow trouble, you may need to take some action. 

Leading from the front, Qantas’s CEO Alan Joyce is taking a $3.3 million pay cut as the airline has slashed international flights by 90% for the rest of the financial year. 

Flight Centre has taken action to close stores and where possible put staff on leave without pay to avoid having to cut jobs. 

If you are across the fundamentals, have taken appropriate measures to cut costs, and understand your budget variances, all this leads to a better conversation with financiers if it comes down to the crunch. 

If you’ve got any questions, feel free to send us a message. We can guide you through your financial management and planning journey.

Jun Yan

Jun Yan

Jun Yan is the co-founder and director at Ravit Insights. Prior to this, he was a commercial banker at NAB.

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