Cash Flow Management
One of the key success factors for a sustainable business model is effective cash flow management. On the flip side, if a business consistently spends more than it earns, this can lead to cash flow issues and potentially, business failure. Debt management is critical with certain debts requiring to be paid on time:
- Salaries and wages
- Loan repayments
- Suppliers within their terms
- ATO debt within the terms
If you are not able to pay these debts as and when they are due, you could start facing liquidity issues, meaning someone could bring action onto you and your business.
When striving for effective cash flow management there are four main areas you can control:
1: Timely payment of invoices
- Before allowing someone to have a credit account make sure they are scrutinized to ensure they are able to pay their debts within your terms.
- Have a debtor policy in place to ensure outstanding debts are followed up on a timely basis.
- Make sure bills are sent out on a timely basis to ensure you get paid as soon as possible.
- Make sure the income you generate is sufficient to cover your costs.
- Review all your expenses to ensure you are still getting the best deal and secondly, if you can cut the costs without affecting the business negatively.
- Ensure all costs are essential and cut out any non-essential expenses.
- Set a budget for income and expenses and match against actuals in order to determine the reasons for over expenditure.
2: Cash flow analysis
As a business owner, you need to perform a cash flow analysis on a regular basis and use cash flow forecasting so you can take the necessary steps to deal with any issues that may arise.
3: Cash flow strategies
Another important step in cash flow management is developing strategies that will maintain adequate cash flow for your business. One of the most useful strategies and approaches is to shorten the cash flow conversion period, so that your business can bring in money faster as explained above.
4: Current business plan
If debt financing is required or where debt is consolidated, or any other form of finance required, it is vital to have an updated business plan in place to present to your financial institutions. The business plan should demonstrate the need and the effect of financing for the future of your business.
Post COVID-19 for Tourism Businesses
As we all enter the post-COVID-19 stage without government support, we need to start thinking about the future. The tourism industry has had some varying results. Many tourism businesses have had a recent increase in activity from local tourism. However, those businesses that are heavily dependent on overseas travellers, have had limited income and are under increasing financial pressure.
So, what’s the next step? We now need to focus on our post-COVID-19 recovery plan.
You will need to consider the business resilience of your organisation. This is the ability your organisation has to quickly adapt to disruptions, while still maintaining continuous operations and safeguarding people, assets and overall brand equity. Business resilience relies on the preservation of workflow to survive unexpected results. Resilient businesses have the ability to ride out uncertainty, rather than be overpowered by it. In some cases, JobKeeper payments and rent relief have kept teams together and maintained current staffing levels to continue operating.
The six-month bank deferral period has now ended and the ATO will stop being so generous in terms of repayment plans, therefore, now is the time to plan for the future success of your business
Plan for the Future
All the above factors will affect your cash flow, now, and in the future. It is therefore fundamental to ensure all information is captured and recorded, allowing you to work out your future cash flow obligations for the business. The next step would be to prepare a budget based on the current information to see if you are able to meet your commitments. If the cash flow budget is not met then you will need to develop a strategy to improve income, consolidate debt or reduce expenses, or, a combination of all three.
Budgeting and forecasting are habits of highly effective business people and this not only helps with understanding your business but, long term, also helps secure funding from the bank. By preparing cash flow budgets and projections you will be able to stress-test your business, identify shortfall periods and identify industry trends, and the consequent impact on your business. These results will allow you to talk to:
- Your bank about your debt funding and how you plan to manage the debt; this may include consolidating debt into one facility to help with your cash flow.
- Your landlord about rent relief and deferred rent payments if this is still an option.
- The ATO about any deferred tax debts.
Review your Business Plan and Business Strategy
COVID-19 may have rapidly changed the way we all do business. Therefore, it is important to revisit your business strategy and if you don’t have a plan in place, this is the perfect time to prepare one with your local accountant.
Key elements to consider for your business plan should include:
- Staffing levels: which staff would you like to keep and what staffing do you need to fulfill your strategy?
- Debt funding: do you need more debt funding? Who could fund you and what is your capital position?
- Business exit strategy: is now the time to try something new?
- Potential external influences: are you prepared for another lockdown?
For more information on business exit strategies and selling your tourism and hospitality business, please click here.
As part of your strategy, we would recommend conducting a SWOT Analysis (looking at the strengths, weaknesses, opportunities and threats of your business) and based on this, begin to make sense of whether your business is still on track to be sustainable in the long term.
Business disruptions have forced changes upon many organisations operating in or with the tourism and hospitality industry, including our own. This is now the time to re-evaluate your business and determine if the strategies in place today, are still the strategies moving forward post-JobKeeper 2.0.
Questions to ask can include:
- What is currently working?
- What can we do better?
- What is not working?
- What else can work?
- What can we do to improve efficiencies?
- What can we do to market ourselves better?
- What can we do to improve our workflows?
- How can we sell more of our product and services?
- What is our industry doing?
- What is our competition doing?
- Are our service standards good?
- Are we flogging a dead horse or are we in a thriving environment but our horse won’t drink?
- Are our staff trained to carry out our business plan?
- Do we have the right people to drive the business?
- Do we have the right accounting systems?
- Do we have a marketing plan?
- Do we have regular reviews?
- Do we address the issues in a timely manner?
How can RSM help?
There’s a lot to think about when running a business, and more than ever, it’s important that someone is always working on the business rather than in the business itself. With proper long-term planning and with a good sound business strategy, organisations now have an opportunity to become much stronger for the future, even in a weaker and recovering COVID-19 economy.
Make a call to your local RSM office to discuss what’s next and the future opportunities for your business with one of our tourism experts today.
Author: Trevor Lake, Director – Business Advisory, RSM Australia
Director – Business Advisory
Shop 4/157 Bussell Highway Margaret River WA 6285
DL: +61 (0) 8 9920 7400