As the coronavirus is literally spreading around the world, it’s important for Aussie businesses to be prepared and not take a head-in-the-sand approach.
The virus is affecting retailers and other businesses and it’s vital to take swift action, says Bradd Morell, national managing partner at Jirsch Sutherland.
Australia’s economy has already been impacted by the slowdown in China’s GDP and the virus will only make things worse.
“It’s unknown how long the coronavirus threat will be around, but it will have a lasting effect on many businesses,” he explains.
“Fixed costs for businesses such as wages, rent, utilities, financing costs and statutory liabilities are not affected by the sales decline. But the anticipated downturn in revenue will have a huge impact on working capital, and those businesses without sufficient reserves may find themselves suffering cash-flow issues. If this occurs, business operators should seek assistance immediately to try to minimise the impact.”
Morelli says it’s not just the drop in customer and sales numbers that’s of concern, it’s also the threat to supply chains, which could affect businesses that use products made in or supplied via China.
“The closure of factories and transport links for any period of time will inevitably lead to massive disruption and supply issues once existing stocks are exhausted. For a small business, this can be catastrophic. Particularly if suppliers only have enough material or product to support some customers―that is, the larger customers,” he says.
Morelli says a powerful solution could be to seek leniency from creditors using one of Australia’s various safety regimes.
“Safe Harbour or the Voluntary Administration regime may buy the time needed to ‘right the ship’. Business operators need to take action for the short and long term,” he says.
Tips for impacted businesses:
Don’t wait: it’s uncertain how long the crisis will last, so build a forecast to understand how long your business can survive under the ‘new norm’.
Diversify and limit risks: seek alternative markets (supply or demand) for your product or service.
Seek help: if you don’t know what your business options are, speak to someone who can help. Equally, if your mental health is affected, seek help from a health professional.
Engage: get on the front foot with your customers and creditors.
Communicate: talk your stakeholders through the impact on your business and the contingencies you are implementing.
Take action: reduce costs where possible to minimise any impact on your cash flow.
Think long term: evaluate supply chains and ensure that future access to raw materials, components and finished goods will not be affected by another catastrophe.
Assess: determine whether you’re over-reliant on China and weigh up how to diversify your supply chains geographically.
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