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Top tips to manage cash flow in the era of COVID-19

For the first time since the global financial crisis, cash flow has taken the limelight from the northern star of the business world: profit. Many companies have put aspirations of growth and development aside in favour of strategic economic planning in this universal fight for survival. As a result of this monumental shift to the order of business, the way we as accountants have learnt to advise companies will also have to alter dramatically for the foreseeable future.

Insights Chris Pattas, Sage 05 June 2020
— 3 minute read

If Australian companies of all sizes can change the way they do business in the short term, we’ll all come out of this pandemic together stronger. So, whether it comes down to forecasting with unpredictable revenue numbers, pooling resources or understanding the many financial assistance options, these tips will help you to advise businesses on how best to come out the other side of this pandemic unscathed.

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Review the financial options

If your client’s business is one of the many impacted by the coronavirus outbreak, they might be eligible for financial assistance from the government. The federal and state/territory governments have announced economic stimulus packages for businesses, which focus on cash-flow support through a combination of ongoing payments and tax relief.

Some additional measures are available for businesses that employ workers to save jobs such as the JobKeeper scheme, which is designed to keep businesses operational where possible.

Alternatively, the big four are each extending their own lifelines to businesses, with the Commonwealth Bank, Westpac, ANZ and NAB all offering help and advice for business customers, including loan repayment deferrals.

If your client is not eligible for the government stimulus package, that doesn’t mean they don’t have options. It is important to encourage them to speak to their bank or industry body for a comprehensive view of the help available to them — leveraging partnerships and asking the question will ensure all options are on the table.

Optimise existing resources

Beyond seeking financial help to weather the COVID-19 storm, accountants should be encouraging businesses to find value in their existing resources and leverage these externally to help others where possible. Large businesses will not survive this pandemic without their network of partners and customers, so they should consider what support they can offer to their own network, enabling them to get back on their feet.

Manage your cash-flow forecast

Even in the current climate, businesses need to be able to make decisions based on sound forecasting and estimates, so establishing a cash-flow forecast is essential. It goes against the chemical make-up of an accountant to be vague, but if accurate figures are unavailable or unpredictable, encourage your clients to start by making a list of assumptions on which to base your forecast. This should include a prediction of price increases for materials and a reflection of this in the fee charged to their customer.

Three key factors to consider in your cash-flow forecast are revenue, expenses and automation.

Once you have a reasonable idea of how your clients’ sales will perform, you will need to estimate the predicted revenue. Though potentially challenging in the current climate, try to consider the payment timeline may be different from the norm. For instance, your client may have a regular customer who makes up a large percentage of their sales, but who has temporarily reduced their demand and asked that they delay payment from 60 to 90 days, which will needed to be reflected in your forecast.

Secondly, expenses such as wages and salaries, suppliers’ costs, rent and rates, directors’ remuneration and the purchase of new assets may require interest payments and insurance premiums. Work with your client to use last year’s bank statements as a checklist while anticipating any new incomings and outgoings for the next 12 months, based on internal and external factors.

Automate compliance workflows

Consider automating workflows or eliminating manual data inputs where possible. Though this may initially seem to be a strain on cash flow, your client could reap the benefits before they are required to pay in full.

Strategically applying automated processes can save a practice hundreds of hours in back-office work that can then be reinvested into client engagement. Notably, the payback is often measured in weeks, not days, which is critical during a time where even a day could break the balance for some businesses.

Though it will be a rocky road ahead for businesses and accountants alike, if Australian companies support each other on this journey through the pandemic, we will come out the other side stronger.

By advising clients to extend their resources to their wider business networks, understand the financial assistance available to them and manage their cash flow to the best of their ability, accountants can play a role in getting the economy back on track and on the road to recovery.

Chris Pattas, director, accountants, Sage

Top tips to manage cash flow in the era of COVID-19
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