The pandemic tested the limits of Australian business owners’ strength, resilience, planning, and ability to innovate. While the financial outcome for businesses tended to vary across industries and locations, those which have survived should draw lessons from the challenges of the past 14 months. Here are 3 lessons from the COVID pandemic to help you build a stronger business:
Lesson 1: Cash Reserves are Essential.
Regardless of whether your business was impacted by mandatory closures or not, the importance of cash reserves was highlighted by the pandemic. However, building a healthy cash reserve for your business isn’t easy. It takes planning and fortitude.
You should start by assessing your annual budgets and cash flow forecast and setting a realistic cash reserve target to build over the next 12 months. From there, you can approach your payments to the cash reserve as you would approach your bills and other costs. Set aside the money periodically or, even better, arrange for automated transfers at regular intervals.
Lesson 2: Implement Weekly & Monthly Targets.
Planning for the short term is key to long-term success in business. Setting weekly and monthly targets requires you to adopt healthy financial habits, like routinely assessing your incoming cash flow, adjusting your payment terms, and improving collections procedures.
Another benefit is that sticking to short-term targets encourages you to keep an eye on business expenses. The reality is that when business is good, business owners tend to lose sight of costs and focus on sales. But growth and profits are both affected by the outgoing costs of doing business. It’s a good idea to periodically review your costs and see where you can reduce them. You can read more about reviewing your overheads in this blog post.
Lesson 3: Maintain Prudent Levels of Debt.
Any decision to take out business debt should be strategic. You should rely on debt to take advantage of opportunities to help you grow, not to keep servicing your current expenses. Additionally, you should be certain that you can pay the debt today and into the future.
Your financial planning will be useful in determining the levels of debt you can safely carry. You need to be aware of your current costs, as well as your projected costs, before you can work out whether you can afford more debt.
This planning will also alert you to any issues you may face servicing your debt if unexpected costs come up or events happen – like a global pandemic. Once you know that you may need a cash injection to pay your debts, you can pre-emptively reduce or rearrange expenses, recover outstanding invoices, sell assets, or reassess pricing. You should also seek financial advice from an expert.
Plan for a Stronger Future with Sharp Accounting
Our business advisory services are for business owners who want to build a stronger business. With Sharp’s expert team, you can expect:
- Regular catch ups.
- Guidance with planning and goal setting for short- and longer-term growth.
- Regular updates about new laws and government incentives.
- Routine business assessments to identify potential risks or opportunities.
- Tips for increasing business cash flow.
- Advice from a team that cares about you meeting your business goals, and your personal life goals.