Now is no time to gamble, but as in a game of cards, you do need to manage risks. Here are the three sharp options for business owners as we play our way back out of the crisis.
- Don’t get hooked on short term cash as a ‘sugar hit’ from government stimulus
- Manage your risks, and make the call
- Hold ’em, Fold ‘em, or Twist – what do the experts see the smart players doing?
Cross fingers, our COVID-19 pandemic is passing without the awful human toll seen overseas. Still, for many business people, the economic downturn has been hard. State and Federal government lifelines have helped owners ‘hibernate’ their operation or stay afloat. JobKeeper, PAYG Credits and more have helped because for many its given them valuable time.
But have we used that time wisely or are we in danger of becoming addicted to the ‘free cash’?
We’ve revisited the advice, and checked in to see what is working, and what you should be thinking about now, not only to survive, but to prosper.
According to Chris Baskerville, the words sung in ‘The Gambler’ by the late great Kenny Rogers are ‘on the money’:
You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
Chris says, “While not relying on Kenny for business advice, there’s something in the wisdom of the song that applies across all business as we start to come out of the deep economic freeze”.
“For many business owners the situation we find ourselves in is a lot like that in The Gambler. Our luck has changed. Maybe we are out of ideas, or we’ve had too much or too little advice. Or the cards are falling badly.
“But suddenly, another player has flicked us a $100 chip (the government stimulus). What do we do?”
These are the businesses that are taking stock. They’ve hunkered down to their homework, having made sure they’d accessed all available support.
For many businesses, at this point, the cash crunch is over, or shut down is deferred. How do those, and the less fortunate ‘Hold ‘em’?
Chris Baskerville says “Get back to basics. Consider regressing your business back to its core competencies and let go any ‘speculative expansion’. For instance, if you are in the used-car business and speculatively expanded to ‘donut manufacturing’ (which potentially was losing money B.C. -Before Covid), then shut down donut manufacturing and get back to the core competency of used-car sales. “You must survive, before you can thrive”.
Safe Harbour – Ginette Muller says Directors of companies big and small should consider this protection as a way of protecting themselves while the business refinances or restructures and moves out of the lockdown. “Indications are that the short-term protections against insolvent trading, and other stimulus will not be extended. So, Directors need to give themselves and their business the time to stay afloat,”’ says Ginette.
“Don’t get hooked on ‘Free Money’. It’s a trap,” says Roland Robson. Get advice, and make sure the cash flow now is used to unmask the problems you need to address.
Has COVID-19 support just delayed the inevitable, and helped some operators keep playing the same game that will never result in a winning hand? Or like Bullwinkle constantly trying to impress Rocky by pulling a Rabbit out of his hat, only to fail each time? Time to walk away.
The Clock is Ticking – Ginette points out that the Government has given every director in Australia partial Safe Harbour for 6 months from 24th March. But this only protects them against insolvent trading (operating a business that cannot pay its debts when they fall due). If a business is insolvent, Directors are personally liable for debts incurred prior to then, and after 24th September 2020.
Orderly Exit – Chris says it’s unlikely that emergency relief will save a business that was struggling before the crisis, and you should not expect a government bailout to rescue it. In this case, work with a professional to undertake an orderly exit while the relief for directors is in place.”
Roland picks up on Chris’ point about getting early advice, from the right places. We hear of all sorts of ‘advisors’ cashing in on distressed businesses claiming the Job Keeper and Cash boost Schemes. Similarly, the internet is littered with Untrustworthy Advisors and those targeting people needing help with Liquidation, Restructuring, Insolvency and Bankruptcy issues. Watch out for ‘bargain basement’ offers. Get advice instead from appropriate, qualified sources (such as the Insolve Panel or TheSolvers.com.au).
In ‘ordinary times’ some businesses have a punt on a strategy that can help grow their business and build loyalty. In adversity, some are forced to, and this is what we’ve seen many businesses do to survive. Some have happened upon new revenue sources which can help cover (or even beat) what they have lost.
While things are opening up, it’s worth taking some of the points to heart in Hold ‘em or Fold ‘em. If it’s to be a restructure, then get advice. And consider Safe Harbour while your Turnaround Plan is in place.
Solicitor Bruce Pasetti says, “PLEASE don’t make agreements on debt restructures or new contracts on a handshake! (or elbow nudge or whatever you are doing to say hello these days). Write it down! So much easier if there’s a problem later, or one of the parties goes broke.
If you want to try something new, or a different way of doing things, lots of entrepreneurs are already onto it. Cafés doing eat at home meals, pubs working with suppliers to offer great deals on cuts of meat or drinks for people to enjoy at home.
What is a different thing or service for your customers? Roland gives the example of a Brisbane gym owner who when forced to close her place, set up a home fitness equipment manufacturing business to meet a different demand. Roland points out though, “that’s not so easy for everyone – don’t just take punt or a blind gamble. Do your homework and get qualified advice.” And if your business cannot pivot like that, ask yourself, is it a Hold ‘em or Fold ‘em decision?
So What To Do? Hold, Fold or Twist?
Whatever you choose will not be easy, and as with any forced business decision, getting advice from an expert is critical. Kenny Rogers went on to sing says, “if you’re gonna play the game … you gotta learn to play it right.”
There are no easy options. Running a good business is about taking and managing risks, but running a good business shouldn’t just be a gamble!