Although the business environment is difficult, there is plenty of opportunity for individual businesses to take the initiative to maintain revenues and profits. Insurers are also willing to work with firms during this time to maintain cover where possible and support policy holders.
Chartered accounting firm Pilot Partners’ associate director Cameron Woodcroft says a useful approach businesses can take during a downturn is to assess which factors are in their control and do what they can to make the most of them.
“Determine your position in all facets of your business, including your workforce, operations, supply chain, liquidity, cash flow and business strategy. Once you know where you are, you can identify the factors that either need to be accelerated or slowed down to both conserve and also generate momentum,” Woodcroft says.
“Remember, being flexible will help your business adapt. Through this process, you may discover better ways to operate your business after the downturn,” he advises.
“A cash flow forecast helps to highlight current expectations and it’s also an opportunity to forecast worst-case scenarios”
It may be an appropriate option for businesses that may not have the full amount for the total year’s insurance policy available now but have the ability to pay it off over time.
It may also suit businesses that can generate more profit from using the cash to invest in stock or other parts of their business rather than paying insurance premiums upfront. In this situation, the cost of the premiums is less that the profit that can be earned otherwise.
Premium funding is also an alternative to approaching a bank for funding. Premium funders typically won’t require collateral in the same way a bank may require security, for instance a charge over the business owner’s property.
Alex Jamieson, proprietor of AJ Financial Planning, agrees on the importance of an accurate and, preferably, weekly set of financial accounts. “Cloud-based bookkeeping applications like Xero can facilitate this.”
He encourages businesses to move away from traditional accounting timelines. “Business owners used to close their books at the end of the month and do financial reporting two months later. But it’s extremely challenging in a rapidly-changing landscape trying to make decisions using old data. And when businesses are financially stressed, it’s even more important information is readily available.”
Jamieson says at the moment businesses, especially those whose cash flow is under pressure, should cut unnecessary expenses, access government support and renegotiate payment terms.
“Also try to find alternative revenue streams, which also helps spread risk. Being over-reliant on one income stream, customer or client can expose the business to sudden shocks. Your revenue streams should be as diversified as your investment portfolio,” he adds.
It’s important businesses that are experiencing cash flow issues in the current climate understand there are options to maintain cover during this difficult period. Many insurers have announced they are prepared to offer small business policyholders who are struggling in downturn the chance to defer paying their premiums. Businesses that have cancelled their policy are also not being charged cancellation fees.
Additionally, although most policies will provide either no or very limited cover if business premises are unoccupied for more than a certain number of days, for instance 90, some insurers are prepared to be flexible around this restriction at the moment.“Paying your premiums by instalments rather than paying for a policy with a lump sum is a good option if cash flow is a challenge,” says Michael White, Steadfast’s broker technical manager.
“It's also an idea to explore how trade credit insurance may protect you against customers defaulting on paying invoices,” he adds. Some businesses that have had to temporarily close may find it challenging to calculate the sum insured for business interruption insurance.
These businesses should talk to their broker to try to find a workable solution. During this period, it’s essential to keep the lines of communication open and keep brokers across the organisation’s circumstances and how they may be changing. That’s a good way to help ensure the firm is appropriately covered through the business cycle and beyond.
Important note - the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. Steadfast Group Ltd (ABN 98 073 659 677, AFSL 254928)
Important notice - Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers
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