Across the globe; we are experiencing an unprecedented event that is entirely out of our control. So, it comes as no surprise that many creative firms have been in touch to discuss the challenges arising from COVID-19.
Stanford economist Paul Romer once said, "A crisis is a terrible thing to waste." While it is common to experience anxiety as the business pipeline becomes drier than forecast, there are things you may be able to do to regain control.
Therefore, I thought it timely to deliver practical advice to help you navigate risks, manage the uncertainty, and prepare your business for life on 'the other side.' Without further ado, let's roll up our sleeves and look at three scenarios, one of which you're potentially facing right now.
Scenario 1: Business as usual
You are one of the few creative businesses lucky enough to be working with clients in industries that have benefitted from - or less sensitive to - an event such as this. It is business as usual, or you may even be seeing an uplift in revenue now and over the coming months.
If this is you, it is still worth reading on.
Scenario 2: Business is hurting but has a strong financial foundation
In the lead up to COVID-19, you have managed your business well and are in a robust financial position. Your Company has a healthy working capital and may have enough reserve cash to weather the storm. You don't have an immediate cash flow crisis. However, you understand you may need to make changes over the coming months to preserve your financial position. Your objective right now is to maintain a monthly breakeven throughout this period.
Scenario 3: Business is hurting and has a weak financial foundation
For whatever reason, your business has low or, in some cases, negative working capital. You are continually running out of cash and negotiating and renegotiating payment arrangements with suppliers.
Now, your pipeline of creative briefs has dried up, or clients have reduced the amount of work they are sending your way. There is very little cash in your business to carry it through the next few weeks, let alone the coming months.
So now you're probably asking yourself, "What can I do to sleep easier at night?"
While the last two scenarios are stressful, and you will need to make some tough decisions over the coming weeks, it is crucial to look for the silver lining in all this uncertainty.
The positive here is that most businesses are in the same boat and have been impacted in some way, shape, or form. Following is a list of items that you can action immediately to help you stabilise the ship.
Firstly, talk with everyone you owe money to from your landlord and suppliers to your bank and the ATO. Most, if not all, will be highly appreciative you have reached out. They will be understanding and will want to work with you. After all, they too, have been impacted by this pandemic.
Secondly, as you may well be aware, the government has formed two rescue packages to help businesses supplement their cash flow and retain staff. If you are not familiar with these, you need to understand what's available to your Company and start the application process immediately:
The Cashflow Booster will pay out between $20,000 and $100,000 between April and October this year for those companies that employ staff. If you lodge a BAS/IAS on behalf of your business, this payment/credit will be paid through that system. There is nothing to action apart from lodging your BAS/IAS as usual. This cashflow booster is only available to companies that employ staff and regularly lodge a BAS/IAS to the ATO.
For more information, click here, or get in touch, and I can help.
The JobKeeper package is a secondary and far more generous supplement designed to retain your staff. The government will also pay $3,250 per month ($1,500 per fortnight) per employee that you keep on your books. This scheme commences this month (April 2020) and will continue for six months, with the first payment being made in May 2020. Importantly, for those freelancers who trade as a sole trader and don't employ staff, this scheme is also designed to assist you and your business. You would also need to demonstrate that your business has seen a drop-in revenue of 30% from the same period last year. The Senate passed this package last week, and to register your interest in this scheme, click this ATO link.
For those businesses that are in a daily cash flow crisis and came into this in a weaker financial position, I want to reassure you that you are not alone. It is an unprecedented health and economic event. Now is precisely the time to seriously consider a business restructure and put the systems and processes in place that will strengthen your position for the future.
I also recommend considering the following to strengthen your business over the coming months.
Maintain your business culture remotely
Your business is your people. So, it's essential to continue working on ways to maintain your business culture. Bain & Company's recent Brief spoke of the need to focus on your Company's purpose and values to help make the right decisions in this crisis. For more help, there is a wealth of information on this topic across publications and LinkedIn.
Prepare a forecast and reduce overheads
Prepare best and worst-case cash flow forecasts for the next 12 months based on varying levels of revenue. Review all the costs in your business and eliminate or reduce costs where possible. Staffing costs will make up a considerable portion of your overheads (approx. 80% of total overheads). Factoring in the government packages that I have mentioned make every attempt to retain staff.
Review the impact revenue scenarios and adjusted overheads have on your bottom line so you can preserve a breakeven or minimise the losses in your business during this period. Having a plan with several scenarios is the most important exercise you can do right now to help you navigate any uncertainty over the coming months.
Use this time for housekeeping
Many of my agency and freelance clients are using this time and their people's spare capacity to work on and strengthen their own brand strategy, branding, website, case studies, new business plans, IT systems and initiatives. Implementing projects such as these will consolidate and bolster your business over the next few months.
COVID-19 will pass, and we'll get through it together. And while everyone is on their own unique journey, I always feel a problem shared is a problem halved. So, how are you using your creative energy to solve the issues and get through this time? What advice can you give others in this industry? Let's start a conversation on how to navigate through this together. Let's find a way of helping each other so we can lift each other up.
I am here to help. I want to help.
If you have any questions or would like to discuss your circumstances with me, you can drop me an email me at [email protected] or contact AGDA.