Understanding your financial position is like knowing what you have in your kitchen before you start cooking a meal – you don’t just start peeling carrots and hope that your dinner will work itself out as you go. And after the six weeks we’ve all had, it’s never been more important to be across your finances!
All of our clients, friends and collaborators are looking for answers. How long is this going to last? What am I entitled to? What are my obligations? Literally when am I going to run out of money?
There’s no better time than right now to share a little guidance with you all, on how to best protect yourself from the bumpy ride ahead. Things are changing all the time, but this information is what I’ve been sharing with my clients, pieced together from discussions with industry colleagues, and cold hard facts from the treasurer and ATO.
My number one piece of advice is to be 100% clear on how much money you have right now, what you need to stay afloat, and then make a plan. And remember – hoping you’ll figure it out as you go along is not a strategy!
First things first.
YOU, personally. Make sure your house is in order – that is: you have a living wage, you can pay your rent/mortgage, home bills and have food in the fridge.
IF your house is not in order, you need to deal with that first. You can’t take care of your business, your clients or others if you haven’t taken care of yourself!
Financial Checklist for Businesses, Freelancers and Sole Traders
1. Know your cash flow position. What cash do you have in the bank (or in your mattress!) right now, and how much are you expecting in the next 30-60-90 days, and how much do you have to spend to stay in business?
2. Be prepared to pivot. Consider how your product mix and sales strategy may need to change to reduce the impact of or take advantage of, current conditions. Look at ways that you may be able to roll your existing business model into another way of trading, to stay relevant at this time. We’ve seen this play out with all the home delivery services popping up – veg boxes, flower deliveries, take home meals and more!
3. Revisit your marketing plan. Investigate how to promote your business in a low cost way, and remain visible right now. Don’t go off-grid if you are normally active online. The internet is hungry for content!
4. Eliminate all non-essential or discretionary expenditures in your business. Check where you normally spend your money and see where you can CUT BACK.
5. Reduce your labour costs. Talk to your staff about short term job sharing or part-time work arrangements rather than redundancies, if you can. Focus on the end game – temporary cuts now could save everyone’s job in the long term. Consider salary cuts for the higher salaried employees (this includes yourself!).
6. Assess your loan repayments. Discuss converting any debt to interest-only with your bank, or seeking a repayment holiday. Look at ALL your debts and talk to your bank to see if you can take the pressure off repayments in the short to medium term.
7. Find out what support you’re eligible for. The newly announced JobKeeper scheme is of particular importance to a lot of small businesses. It’s available to small businesses with employees, as well as sole traders. These payments are designed to incentivise employers to keep their staff employed and for businesses to keep operating through this time. Eligible businesses will be reimbursed a fixed amount of $1,500 per fortnight for each eligible employee and also for non-salaried directors or ‘business participants’ ie. partner or sole trader. Your business must have seen a 30% reduction in income (compared to the comparable period in 2019) to qualify. More info can be found here – I recommend seeking the advice of your bookkeeper or accountant to ensure you meet all the requirements.
8. Review other cash flow relief and support options provided by the ATO, the State Revenue Office, State Government and local councils. Money will start coming in from different government branches from next month, but there are probably even some available in your specific market, or in your local communities so keep an eye out on your local council website, as well your State Government website (The Victorian State Government is offering one time $10k grants for eligible businesses), and the ATO website. If you have an accountant, ask them to help you navigate these options.
9. Identify other options for short term sources of finance. A cash flow loan could be a good option if you need to pay some liabilities down to help you sleep at night (eg. staff’s superannuation and small suppliers). Bear in mind the loan approval process can often take a number of weeks.
10. Sell surplus assets that do not have debt attached to them.
SOME USEFUL LINKS
Connect with Line Paras and her team at Counting Clouds via their site or on Facebook and Instagram. If you want more in-depth, up-to-date advice, check out Line’s new podcast, ‘The Silver Lining’ here!