JobKeeper has been a lifeline for many businesses. With the wage subsidy scheme drawing to a close on 28th March 2021, many businesses will suddenly be faced with a significantly higher wage bill. Without proper planning, this has the potential to seriously impact viability, profitability and cash flow.
Instead of feeling paralysed by worry, however, businesses should see this as an opportunity. Many businesses may find the end of JobKeeper gives them the push they need to overhaul their finances and operations to create a stronger, more profitable business.
So, how can businesses transition to a post-JobKeeper environment successfully?
Plan for both the worst and best-case scenarios
Businesses should undertake scenario planning to prepare for the worst possible situation, as well as the best. What would happen if your revenue stayed the same, declined or grew? Could your business operate with a cut of 10 per cent to headcount? What about 30 per cent or 50 per cent? Are your production costs likely to rise or fall? How is customer behaviour likely to change if at all? By considering various scenarios, your business will be armed with appropriate strategies to deploy depending on how things play out.
Restructure and reduce headcount
Many businesses may find they will need to reduce headcount in order to reduce their wage bill and remain profitable. Businesses should carefully consider what structure will best suit the business going forward, how responsibilities can be redistributed and how to minimise any loss of knowledge or IP. It’s a careful balance between keeping wage costs as low as possible without sacrificing on the knowledge, skills and talent to keep the business running successfully.
Forecast cash flow
While it’s a cliche, the old adage that ‘cash is king’ is very true. Even the most successful businesses can be undone by cash flow challenges. The only way to understand if you’re likely to experience an issue with cash flow down the line is to create a forecast. A cash flow forecast will track forecasted income alongside forecasted costs to see when your costs may exceed income. It’s about understanding how often you’ll need to dip into your cash reserves and if you have sufficient cash to afford any upcoming costs.
Now is an excellent time to scrutinise costs and reduce as many expenses as possible so you’re not dipping too much into your cash reserves. Consider renegotiating contracts with suppliers, signing a new office lease or encouraging staff to work from home some days to reduce overheads such as energy and internet costs. Are there any non-essential costs that can be cut or reduced, even in the short-term, such as wining and dining clients or buying gifts?
Understanding profitability should go much deeper than just having visibility of your gross or net profit, instead you should seek to understand your profit margin on every product or service. This will give you a better idea of where your focus should be. You may find you’re better off dropping certain products or services, increasing your prices or finding ways to make the production process more efficient.
Simply improving your process for payables and receivables can make a big difference to your cash flow. When it comes to receivables, make sure you invoice or bill promptly and have a process for following up overdue payments. You may also want to consider charging interest on overdue invoices or bills as a further disincentive against not paying on time, or offering a discount for early payment as an incentive.
When it comes to payables, look at options to introduce more flexibility. Is it possible to re-negotiate creditor payment terms? Don’t pay until close to the deadline to free up your cash in the meantime. Source suppliers with flexible payment terms to prevent you getting stuck.
Build recurring revenue
Recurring revenue will provide your business with reliable and consistent income. It will ensure you have enough cash coming through the door regularly so as to avoid cash flow bottlenecks, reduce your sales costs and keep your cost per acquisition low. Options for recurring revenue include subscriptions, retainer contracts or membership programs.
Having cash to invest in the business’ recovery and growth will be important. It’s also important to have a cash reserve to safeguard against any cash flow challenges. Look at ways to access credit or introduce liquidity. Even if this isn’t something you’ll need right away, it’s best to be prepared.
With the economy already experiencing growth in the September quarter, the economy is already officially in recovery. You may find your business only needs to batten down the hatches in the short-term before scaling up again.
Ultimately, minimising the impact of the end of JobKeeper will come down to getting the right advice and taking prompt action so your business can adapt accordingly.