Share this COVID-19 business checklist with clients to help them navigate these uncertain times.

In Brief

In this uncertain economic time, CAs should advise clients to assess the impact of COVID-19 shutdowns on both their supply chains and customer demand. Businesses need to match their cash-flow forecasts to the projected length of the COVID-19 crisis.
Remind clients they are not on their own. Thousands of businesses are facing the same situation.

By Andrew Barnden FCA

The rapid spread of COVID-19 across the world has created an economic climate of unprecedented uncertainty. Here are seven key points you should talk to your clients about.

1. Cash is king

A former colleague of mine had a saying: “Turnover is vanity, profit is sanity but cash is king.” This is more important than ever in the current COVID-19 climate.

Since the start of the coronavirus epidemic, I have been advising business owners to consider their current cash position and then prepare a cash flow for the next two months, four months and six months.

Then I ask them how long they believe this pandemic will continue and to match that up to their cash-flow forecast for that time period.

If they are worse off then they should ask themselves if it is worthwhile continuing to trade on. If it is, how long will it take for them to recover from the cash-flow hole caused by COVID-19?

2. Look at your supply chains

Businesses must look at how their supply chains are affected and whether there are alternatives. When looking at the supply chain, don’t only look at the product that you order, but the individual components that make up the product you want.

While China is a big manufacturer, it relies on high-quality components sourced from countries such as Italy, South Korea, Japan and even the US, which are presently in a close-down situation.

In addition, even though the supply chain for the goods that you require may now be back up and running, also consider the delay in having the goods shipped to you (four to eight weeks’ shipping time for sea freight, while air freight is very expensive – that is, if the planes are even flying from China).

How can you secure that supply compared to your competitors (and at what price in a high-demand market) and how do these factors affect your cash flow?

3. Look at your demand chain

Look at your customers and how they have been affected by COVID-19 and what impact this will have on orders. Has their business ceased due to other key products not being available or by forced closures? If so, how long will it take for them to be back to normal levels?

(For example, a couple of weeks ago I made a trip to regional New South Wales, where after recent rains the farmers were keen to prepare the soil, including killing the weeds in order to plant their winter crops. However, they were having enormous trouble sourcing herbicide as it was manufactured in China.)

In addition, you should look at other opportunities that may arise due to the current situation. An example of this is an events caterer who, due to cancelled orders, instead made pre-packaged meals and sold them to the public via the internet.

4. Can you really afford to let go of your employees?

The people that make up the workforce of a business can be one of its major assets and may hold crucial licences/qualifications essential for its operation. What happens to the business if they leave your employment?

You also need to determine whether you can afford to pay them moving forward. Alternatively, can you legally stand them down for a short period and, if so, can you meet the accrued annual leave and long service leave payments they are entitled to?

If you have to terminate staff, can you afford redundancy pay and has the process been done fairly so there are no unfair dismissal claims? Where cash flow is tight, one option in Australia may be to access the government’s FEG scheme (Fair Entitlements Guarantee scheme) if the company is placed into liquidation. That will pay all eligible employee entitlements except for superannuation.

“The people that make up the workforce of a business may hold crucial licences/qualifications essential for its operation. What happens to the business if they leave your employment?” Andrew Barnden FCA

5. Review these conditions regularly

Continue to review all of the above as things change. Have contingency plans in place to know what to do if certain things happen (e.g. how do you cope with a government lockdown scenario?)

Australia is currently two to four weeks behind most of the world in respect to the COVID-19 timeline, so events that have happened overseas can provide a good insight of what might happen and you can plan accordingly.

6. Access professional help

You are not on your own. Thousands of other businesses are facing the same issues. Look at obtaining professional help – the sooner, the better.

The first point of call should be your accountant, who as your trusted adviser should be able to direct and assist you in obtaining the various stimulus benefits announced by various levels of government.

If required, your accountant should also be able to put you in touch with an external adviser to independently review the position of your business and make a recommendation.

If all else fails, look at approaching a chartered accountant who is also a member of ARITA (Australian Restructuring Insolvency and Turnaround Association) or AIIP (Association of Independent Insolvency Practitioners) to provide you with quality advice.

Ensure that any adviser is qualified and is a member of a well-known professional organisation – remember, if the advice sounds too good to be true, it probably is.

7. Be aware of your mental health

Your wellbeing and that of your family is the most important thing at this time. Consider the stress on you and your family, especially if a family member has the coronavirus. You will find good advice at Beyond Blue, Head to Health and Lifeline.

In the unfortunate event that you need to close your business, whether voluntarily or government mandated, work out whether it is a temporary closure or a permanent closure and communicate this with the various stakeholders (e.g. employees, creditors, the ATO or IRD, landlords, financiers, banks etc).

Also consider any personal guarantees you may have provided around things like equipment or rental leases and how this might affect your personal asset position, together with your obligations under the law.

Andrew Barnden FCA is the NSW director of international insolvency network Rodgers Reidy and chair of CA ANZ’s Insolvency Management Committee.