Fordham Group manager Dannielle Cochrane discusses why businesses should undertake a review right now.
The COVID-19 environment has had detrimental effects on the retail industry.
All states and territories, other than Victoria, are slowly returning to normal, however, there is no doubt that the impact of the shutdowns as a result of the COVID-19 restrictions has been huge.
Victorian stores, in particular, have suffered with significant declines in foot traffic, or in the worst-case scenario, their doors have been closed.
So, the question we ask ourselves is, how does this play out?
Regardless of if all stores could return to normal trade tomorrow, it is evident that there will be an ongoing impact of COVID-19 for some time.
Retail businesses are not alone, events management, tourism, recruitment, hospitality are all industries that have suffered greatly.
Significant job losses have occurred impacting upon the wallets of consumers who now assess buying opportunities through a new lens.
All impacted businesses operating in this environment need to be looking to implement constant monitors to ensure the longevity of their business.
Key aspects that should be monitored are timely business performance measures and the regular forecasting of cashflow under alternative scenarios, paying particularly attention to the winding up of government stimulus packages such as JobKeeper, and rental relief.
The winding up of JobKeeper will have a significant impact on retail businesses.
On 21 July 2020 the Australian Government gave businesses another lifeline by releasing updates to this stimulus package.
The program will continue until March 2021, however, it will only target businesses where there is a sustained decline in revenues, and the payments per fortnight are reducing.
This means that the criteria to be eligible is tightening as the scheme goes on, and as such, businesses need to consider the impact of moving forward without the assistance of these payments.
Rental relief is another important impact to consider, particularly, what might happen with rentals and whether businesses will continue to seek rental relief after September 2020.
Given the JobKeeper stimulus package is to be extended for businesses and the code of conduct applies during the period in which JobKeeper is operational, no doubt retailers will expect continued support from landlords where they have suffered a year on year decline in revenues.
For those businesses who aggressively pushed out or took on new debt, this also needs to be reviewed and considered.
Banks have granted repayment holidays for businesses and individuals impacted until September, and some banks have indicated they will extend the freeze on repayments for a further four months, all the while with interest compounding on the debt.
For those who took on further debt, unless business returns to normal in the very near future, the business may simply not have the ability to make these repayments.
For businesses where trade is returning to a level of normality or is slowly improving, there are likely still detrimental impacts from the past few months to overcome before it will be viable to make any repayments.
Therefore, the key to the longevity of your business is to use the time available now with the benefit of JobKeeper payments, debt and rental relief to look at your underlying business model.
This needs to be reviewed to streamline your business to make it as lean as possible.
If revenues aren’t expected to return to normal in the short term, you may need to again revisit your overheads and cut out any excess expenses that aren’t required.
Which essentially means you may need to transition your business to carry just the bones of what is required to ride out the period of uncertainty.
If your business is one of the fortunate ones and has been able to trade throughout the entire period relatively well, don’t waste a good downturn by not reviewing your business.
‘Rightsizing’ and refocusing the business remains beneficial to maintain margins and profitability into the future, so maintain your focus.
If you’re seeking assistance or advice in relation to JobKeeper eligibility, cashflow forecasting, assessing performance, rightsizing your business or managing your way back from the implications of COVID-19 in general please do not hesitate to contact us at Fordham.