In the last quarter of 2019, it was reported that Australia’s economy had experienced 2.2% year on year growth, beating the estimated growth rate of 1.9%. The prediction made by Trading Economics was for GDP Annual Growth Rate in Australia to stand at 1.10 in 12 months time. This was enough to make most business owners feel that a positive financial trend would continue.
But what a difference a few months makes.
The COVID-19 outbreak was not something which could have been accurately forecast. Unfortunately, it wasn’t something that many businesses were truly prepared for. As a result, many were left struggling to keep their doors open and support their staff.
The crisis was a sobering reminder that blue skies today don’t mean it won’t rain tomorrow. Here are some of the biggest lessons learned from an accounting perspective.
Cash is king
When cash is coming in regularly, it’s easy to feel as though the flow will never stop. However, as COVID-19 taught us, you need to have fast access to extra cash in the case of an emergency.
Review your budget and allocate a percentage for savings. If this isn’t possible, have an understanding of which assets you can turn into cash quickly should you need to.
So is being financially aware
Again, in good times business owners can get away with not having a detailed understanding of their financial position. So long as quarterly reviews show things are stable, there is no need to panic, right?
Unfortunately, this approach only works when you have guaranteed income. And we all now know that no business has this.
If you only learn one thing from the COVID-19 crisis, it’s that you need in-depth awareness of your spending, revenue, profits, and bank balance on a weekly basis. Being clear on what your business expenses are, how much you owe and how much you need to pay your staff each month will help you understand your KPIs and break-even figures. This knowledge can help you plan and prepare for the worst to happen.
Read more: How to protect your business from a worst-case scenario
Focus short term, think long term
Even before COVID-19, the businesses which were set up for success were looking into the future by forecasting revenue and examining how they could expand, grow and take advantage of incoming opportunities.
With a good accountant, you can plan ahead and identify ways to invest so your business has multiple revenue streams and can survive a setback.
COVID-19 highlighted the importance of being tech-savvy as workers were forced to retreat indoors and communicate online. The businesses which had already invested in software solutions to work remotely were able to hit the ground running.
As well as staying on top of technology, your business should always be aiming to identify ways to innovate and introduce new products and services. Being diverse and adaptable will set you up as a more robust enterprise.
Innovation can come from anywhere and can include the way you manage your finances so speak to your accountant about how things can be improved.
Customers are your most important asset
Even if they were able to pivot, the businesses impacted by COVID found themselves facing a great deal of competition.
The pub that became a home delivery service, the gym that became online only and the software company that specialises in creating intranets all faced the challenge of cutting through the noise of similar businesses.
This is where having customer loyalty was essential. If your business has an amazing relationship with its customers, they will be willing to change their habits or even spend a little extra to help you out.
If the good times led you to forget about the importance of customer service, reboot it as a priority. Customers are cash and cash is oxygen so treat your ‘tribe’ with the respect they deserve and love them as much as you can.
From an accounting perspective, it’s also worth knowing the average spend or lifetime value of a customer. How could these be improved and do you have enough customers to survive if you lost 30 per cent or more in one go?
Every lesson learned from COVID-19 is a valuable one which can be leveraged to create a secure future and a business that is unstoppable.
Need help sorting out your business finances? Contact CBQ Financial.