Cash Flow Revisions Essential for Businesses Post Covid-19

25/05/2020 12:00am

Predictable cash flow is an essential ingredient for all businesses to be able to make and implement plans, but unpredictable events such as Covid-19 mean many will have to begin rethinking the future.

Covid-19 and the restrictions that the global pandemic has forced onto businesses since March, including shutdowns, reduced workforces and adjusting product offerings, have disrupted cash flow, and forced many business owners to reassess what their future finances will allow them to do. Many will need to revise their cash flow predictions and budgets accordingly.

“This will be critical to business survival,” said Hood Sweeney Head of Accounting, Scott Young.

He said it would be particularly important if businesses need to apply for funding, either through new loans, increasing existing loans or for any form of business-based government grant or stimulus measure.

Banks and financiers will be looking for updated cash-flow budgets that include detailed descriptions and assumptions on how cash flow has been disrupted, what remedies are in place, and projections on how the business cash flow is sustainable moving forward.

Cash flow projection or budgets have assumptions around fixed costs and variable costs, which must be accurate for businesses to be able to borrow.

“The world of business lending has fundamentally changed in the past six weeks,” said Jonathon McLachlan, Commercial Lending Specialist of Hood Sweeney Finance*. “Assumptions need to be checked in this current environment. Your model won’t be really robust if the right finance assumptions aren’t plugged into it.”

Your accountant can help to recognise changes in cash flow, develop new cash flow forecasts and budgets, and assist with monitoring and managing performance to achieve a forecasted budget. And your finance manager can assist with the next steps towards borrowing, if necessary.

An example:

Consider a manufacturer whose products are typically made for hospitality, an industry which has largely shut down because of Covid-19 restrictions. The manufacturer decided to pivot towards manufacturing a health-related product in the short term, which requires some retooling of the operation.

To help identify the costs of change and how to fill the gap, the manufacturer seeks assistance from an accountant. The accountant can help to assess an update cash flow projections and budgets.

If the manufacturer needs to borrow, the finance team can step in to assist. But before any conversations with banks go ahead, the manufacturer will need the updated cash flow analysis.

For assistance with forward planning for your business, ring Hood Sweeney on 1300 764 200 or send an email and we will get in touch.


* Hood Sweeney Finance Pty Ltd, Australian Credit Licence No. 391396 ABN 12 113 454 014

+Hood Sweeney Accounting & Business Advisory, ABN 30 007 696 595, AFS License No. 485569

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