As we hear the government advise that we can approach our banks for great lending options during the pandemic, this gives many of us the safety net we need in our business, a sense of hope, and security in our business finances to ride this wave.
The Australian Government is putting up 50% security on business loans and this means the banks are more inclined to lend us money we could not get before. This all sounds like great news.
But my thinking is quite the opposite.
If we did not qualify for the lending before, why should we be applying now?
A way to look at your options is to have your projected cash flow mapped out like really mapped out, not just for the period of having no repayments, but well after.
The same goes for deferrals to your ATO Tax or GST payments. Likewise, any other options coming your way for deferred payments.
It can be, for some small businesses, a massive relief, to know that we can survive the pandemic and reach the other side of this horrific time. Be able to sleep at night and know that the months or years of hard work and dedication, was not for nothing.
Here lies the trap…
Although we are relieved now, what does this mean for us later?
What will we have to pay back once the pandemic is over?
How will our cashflow survive on the other side?
As a small business owner, I know it’s very tempting and I also know for many this is the necessary evil. Some businesses have no choice but to defer and lend right now.
But we need to know the other side. We must know what it means for us after!
A simple way to do this is to speak to your accountant, your financial adviser, or even your bookkeeper. Know your numbers before COVID, know your numbers during COVID, and certainly, above all else, know your numbers after COVID.
The before numbers are easy, having your pre-COVID data is simple. The during numbers are also easy, you know what your business is doing right now. The after numbers are tricky.
Some are working on the premise that using their pre numbers, divided by 2 as an estimate of their post COVID revenue. This is due to everyone’s budgets being tighter after and the thinking that it will take some time for the economy to return to normal.
Many are just working on the assumption that their pre numbers will fully return.
This all comes down to your industry and business and how you were positioned pre-COVID.
The approach of having no debt post-COVID can be a bit of a fantasy. In the ideal world, we would all like to aim for this, and this was my personal strategy at the beginning.
But like many, seeing a decline in business is real, it did not happen straight away, but the tumbleweed effect came through and everything needed to be reassessed.
My new approach is simple… no additional lending, if my business cannot afford it, it either goes or it is carefully reconsidered. I’ve had to cut costs where I can, I’ve stopped myself from any retail therapy (online) first and foremost.
My theory is to reach the other side without and overwhelming debt my business simply cannot afford.
Watching the bank balance daily.
Updating my cashflow week by week and ensuring I keep as many things in check so that when we all return to “normal”, I can start to rebuild the regular cash flow and plan out of the downtime my business experienced.
Like many, the temptation is there.
To lend or defer is real.
But keeping as much to a minimum, I know, will see my business have less burden on the other side.