Business Survival Tips during COVID-19 (Part 1 of 4)
Last Updated 11 June 2020
First of a four-part series outlining business survival tips during COVID-19.
Customers
Focus on retaining your customers, being empathetic with your customers and providing a high-level quality service or product to your customers. This is the time to go above and beyond for your customers and make them customers for life.
Suppliers
Talk to your suppliers regularly, make sure your suppliers understand that they are an important part of your offering. It is key to your survival that you secure your supply chains. It is also very important to communicate honestly and negotiate fair pricing that works for all parties involved. Working with your suppliers will help build strong relationships that will last for years to come.
Dream Team
Surround yourself with the dream team. Three elements of the dream team are staff, advisors and your extended network. This is an opportunity to refine your business process and ensure you are surrounding your business with the right people.
COVID-19 and the Importance of Automation
Last Updated 26 May 2020
COVID-19 has impacted businesses across the globe and forced them to look at operations differently in order to survive. Many businesses have turned to innovative technologies to help automate their business process and increase efficiency within their business.
Increase accuracy, reduce costs, increase efficiency
A clear example of technology increasing speed, accuracy and reducing cost is Xero bank feeds connects your bank to your accounting software and allows seamless, accurate and timely flow of transactions.
Open new frontiers in your workplace
Technology increases the visibility of information, allowing business decisions to be made quicker, allowing more time to be spent on other areas of the business. Accessing a business dashboard on your tablet or smart phone is an example of this increased visibility of information.
Focus more on strategy
Utilising automated processes helps you limit time spent on validating historical transactions and gives you time to focus on strategy and growth.
COVID-19 and Importance of Cash Flow Management
Last Updated 13 May 2020
In uncertain times, cash flow becomes extremely important, businesses need to develop a cash management plan as part of their business risk and continuity strategy. As part of businesses plan they must address cash preservation, cash management and utilise technology.
Cash Preservation
- Manage supply chain risk; communication with buyers/suppliers, negotiate payment plans and keep an open communication channel
- Financing; assess lines of credit available to you, utilise SME Guarantee Scheme.
- Rent; negotiate rent reductions
- Reduce variable costs; hold off on non-essential purchased and review overheads such as advertising
- Take advantage of Government support such as JobKeeper payment scheme
Cash Management
- Inventory Management; purchase safety stock for security against supply chain disruptions, reduce perishable goods inventories and find a balance between buffer inventory & cash flow.
- Manage receivables; customer may delay payments, improve collection process and practice timely & accurate invoicing.
- Internal audit; pay the right amount for purchased, utilise discounts and put in place long term policies to reduce wastage.
- Convert fixed to variable costs
- Cash flow forecasting; update forecasts on a weekly or monthly basis.
Technology
Utilising forecasting tools such as Float can produce real time view of your numbers with the click of a button. Float can help a business with a variety of functions; forecasts, reconciliation, managing invoices and bills, creating budgets and planning for different scenarios.
ABJ Solutions highly recommend the adoption of Float into your business, especially during these challenging times. At ABJ Solutions, we are experts on float and are happy to get you started.
Cash Flow Management
Last updated 13rd May 2020
Cash flow management is an integral element of a successful business, and especially so in the current economic climate. It is essential that businesses develop a plan to preserve and manage cash flow as part of Covid-19 risk assessment and action planning in the near term.
Cash Preservation
Businesses must ensure they are preserving cash where they can. This can be done by managing supply chain risk, financing options, negotiating rental reductions, reducing variable costs and taking advantage of Government support.
Cash Management, Internal Review and Controls
Businesses should conduct a review of the existing structure in order to ensure minimal wastage and maximum efficiency. Focus on the following:
- Inventory Management
- Inventory safety stock parameters will need to be updated; you may consider securing additional stock as buffer against prolonged supply chain disruptions.
- Consider reducing finished goods inventories, especially in perishable products.
- Businesses must balance demand for buffer inventory vs. cash flow.
- Manage Receivables
- Customers may delay payments or negotiate payment plans.
- Improve your collection process – focus on customer-specific payment performance and identify changing payment practices to plan for disruptions.
- Practice timely and accurate invoicing. Reduce delays at all costs.
- Internal Audit
- Pay the right amount for purchases and collect the right amount on sales.
- Make sure you are taking full advantage of discounts.
- Put in place long term policies and process improvements to reduce wastage.
- Convert Fixed to Variable Costs
- Reduce pressure on the business by converting fixed costs to variable costs such as selling assets and leasing them back.
- Cash Flow Forecasting
- Create an up to date cash flow forecast to project cash inflows and cash outflows
- Forecasts help identify and plan for peaks and troughs in finances
- Update cash flow forecasts on a weekly or monthly basis. Circumstances are regularly changing, and businesses must keep up to date.
Technology and Cash Flow Forecasting
Cash flow forecasting tools such as Float can be used to easily produce a real time view of your numbers with the click of a button. Float can help businesses with a variety of functions:
- Forecasts – Auto-forecasting option that predicts the future based on historical data or the manual option to be used now to factor in uncertain Covid-19 economic conditions.
- Reconciliation – Automatic reconciliation with financial tools such as Xero or Quickbooks. It is recommended to update your bank reconciliation weekly, if not every couple of days.
- Managing invoices and bills – This feature is particularly helpful at the moment, making it easy to keep track of accounts payable and receivable.
- Creating budgets – Simple modification or creation of budgets. During the current changing economic landscape, users can quickly create and edit budgets.
- Planning for different scenarios – Create different plans to factor in change in inputs such as government funding, delays in collections or impact due to government regulations.
Conclusion
Cash flow management needs to be an integral element of a business’s overall risk assessment strategy, especially in the current economic climate. We urge you to evaluate cash flow requirements, plan for various cash flow scenarios and plan accordingly.
Break-Even Analysis
Last updated 8th May 2020
It is more important than ever that a business understands their break-even position to make informed decisions and plan for the future.
Break-Even Point
A business’s break-even point is the stage at which total revenue equals total costs. Once a business has determined their break-even point, they may begin to assess pricing structure, costs and whether the business is sustainable at this break-even point.
How to calculate break-even point?
There are numerous ways for determining a break-even point.
- Calculating break-even point based on sales when selling a product
- Break-Even Point = Fixed Costs / Gross Profit MarginExample 1
If fixed costs = $100,000 per month and Gross Profit Margin = 70% then your Break-even point = $142,857. That is, you must sell at a minimum of $142,857 per month to ensure that you don’t lose any money.
- Calculating break-even point based on units
- Break-Even Point = Fixed Costs / (Revenue Per Unit – Variable Cost Per Unit)Example 2
If variable cost per unit = $20 and sales price per unit = $25 then your contribution margin = $5 per unit. So, if your overall fixed cost for the business is $50,000 per month, then you must sell a minimum of 10,000 units per month to ensure that you don’t lose any money.
- Calculating break-even point based on sales when selling a service
- Break-Even Point = Fixed CostsExample 3
If fixed costs = $100,000 per month then your Break-even point = $100,000. That is, you must sell at a minimum of $100,000 per month to ensure that you don’t lose any money.
Break-Even Analysis
Using their break-even point, businesses need to evaluate their current situation as a result of Covid-19 and how to best arrive at the break-even point – by reducing fixed costs, selling more units, increasing prices or a combination of these options.
The break-even point is a financial formula that should act as part of a wider business plan. It is critical that during this current economic climate businesses use tools to assess costs, sales volume and pricing structures to plan for the future based on numerous scenarios.
Conclusion
There are many tools available to businesses that can be used to make informed decisions – break-even analysis is one of these tools. It is more important than ever to stay educated and utilize what is available to you.
Cash Flow Forecasts & Break-Even Position
Last updated 24th March 2020
It is critical to create a cash flow forecast and understand your break-even position so that you are well informed and pro-active with your decision-making process during these tough times.
It is best to work through some worst-case scenarios, understand response times and what the business needs to do to stay afloat.
Part of this process is having a strong understand of which of your costs are fixed and which are variable, as well as what is your gross profit margin.
