How to keep your business finance agile in a disrupted market

Judo Bank co-founder and co-CEO Joseph Healy. The growing uncertainty of the COVID-19 situation in…

Judo Bank co-founder and co-CEO Joseph Healy.

The growing uncertainty of the COVID-19 situation in Australia has made it more critical than ever for SME business owners to respond to rapidly changing situations. Newly reinstated and heightened restrictions in Victoria place additional pressure on business owners to find alternative operating solutions to accommodate closures and reduced output requirements. 

A dynamic approach to business finance is critical in such a volatile landscape. But while there is much doom and gloom in financial forecasts, “this is a great time to be entrepreneurial”, says Judo Bank co-founder and co-CEO Joseph Healy.

“Use this as an opportunity to change the business model, to invest in the business.”

SmartCompany spoke to Healy and Jason Andrew, co-founder of accounting and consultancy firm SBO Financial, to gather their best advice for keeping your business finances nimble.

Now is not the time to be with the wrong bank. Choose a bank dedicated to your business. Choose Judo Bank. Visit judo.bank or call 13 Judo.

Improve your business financial literacy

The first step is to “have a very clear picture of your financial situation and develop at least a 12-18 month target”, advises Andrew. This includes an honest consultation with your accountant to audit the financial health of your business.

“A lot of the time there’s something wrong in the business — whether the business does not understand their financials properly, they do not understand where they are making money or what they are selling,” he says. 

“Or maybe the directors are drawing too much out of the company without realising it.” 

“You’ll also need a strategy to obtain finance from lenders that have become increasingly risk-averse in the COVID-19 climate, despite low interest rates”, says Healy.

“You’ll need a crisp statement of the opportunities you’re looking to get into, the risks you see, and how you’ll manage those risks,” he says. 

Focus on your cash flow

Boosting your cash flow is another way to gain some financial flexibility. Accessing government assistance, and accessing deferrals of ATO debt, loan repayments and rent are immediate options, says Andrew.

“As a business owner, your first point of call is certainly to consider deferring all ATO debt, as much as possible,” he says. “The other is leaning on suppliers, if you can.”

However, this strategy comes with a caveat — “be very mindful that you will need to meet your commitments down the track”. 

Understand your financial options

There are myriad financing options available.  

Healy says each business situation warrants a different financial approach. For example, a straightforward loan to spend on refurbishing your premises, a line of credit for operations or non-routine purchases, or perhaps asset financing to purchase vehicles for delivery services. 

Healy says “it’s best to consider options that offer some security.” 

“No matter what kind of financing you take on, always look for committed financing that has three to five years attached to it,” says Healy. “Don’t ever expose yourself to short term financing like overdrafts, as those can be withdrawn.”

He also advises SME owners to consult with a commercial banking broker.

“Commercial bankers have a good helicopter view of options available in the market, from both banks and non-banks,” he says. “And they’re in a good position to help advise on the most appropriate and suitable type of financing.”

A further option is raising private capital, which Andrew says can be risky due to pressure to deliver a high return.

Look to successful examples for direction

Healy says some Australian businesses in the hospitality sector have been able to use their financial options to innovate quickly.  

The owners of an iconic restaurant in Melbourne began to offer home deliveries for the first time during lockdown — it has delivered more than $60,000 in weekly income and will continue after lockdown ends. The business is also financing to refurbish its premises while empty. 

“So suddenly they’ve got a whole new stream of revenue,” he said. “I’ve seen several examples of businesses using this as an opportunity to rethink their business model and deliver a brand-new proposition that will be very successful over time.” 

In short, if you do not have a flexible and responsive lender supporting your business, you  should be looking to change that.

NOW READ: How to combat the side effects of changing your business model

NOW READ: Mind the September cliff: Adapting to change in the COVID marketplace

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