Well Covered

The nation is cautiously exiting the corona virus lockdown period. But many firms will need to shapeshift to ensure their business model is suitable for what may be a frugal period ahead in some sectors.

A strategic approach to business planning is, therefore, essential. The first step should be to create a six-month tactical plan as restrictions start to ease, including a review of any pre-COVID-19 business strategies.

“Now is the time for innovation, creativity and entrepreneurship,” says Wealth Forum financial planner Sheila Cabacungan.Short-term, devise a step-by-step tactical action plan to go from lockdown to restricted trading to full capacity.

The tactical plan should also focus on the practicalities of trading during the pandemic, which is a period when social distancing and personal hygiene may require changes to business premises and operations.

John Clark, Steadfast’s broker support manager, acknowledges how difficult it is for small businesses to plan for the months ahead.“Survival is the primary issue with most businesses, with a view long-term to returning to pre COVID-19 levels or even better,” he says.

In the meantime, Clark encourages businesses to focus on twin goals: cost reduction and revenue generation. When it comes to cost reduction, he notes wages and stock are typically a firm’s biggest expenses. “Prudent spending in these and all other expense areas will be needed.”

“Also consider spreading premium payments by using premium funding to assist with cash flow”

Cabacungan agrees staffing is an area that requires a review. “Explore how to operate on less staff now and still make plans to scale up operations and build the team as the business recovers.”

For some in-demand businesses such as those in health, the requirement will be to ensure the business is appropriately staffed to accommodate a period of strong growth.Also review terms of trade with customers and suppliers, tweaking payment arrangements if necessary.

Think through whether offering terms is sensible if you are worried about the customer’s viability. Work with your accountant or adviser to ensure your business can meet the terms of any financial arrangements you have in place or negotiate new terms before you go back to full operation.

The role of insurance in the recovery

Insurance is still essential for businesses during the corona virus pandemic, perhaps even more so. So as much as possible, keep existing policies in place and review them in the same way as in more normal times.

“COVID-19 has not stopped storms, hail or fire and other unexpected events covered by insurance policies,” says Clark. “In times of need, insurance is an essential economic friend and a means for compensation if unexpected events like fires, storms or theft occur.”

For some businesses, it may be tempting not to renew policies to save costs. But this is likely to be a false economy should an insurable event affect the business and compromise its status as a going concern.

There are avenues to explore to reduce the cost of cover rather than fail to review policies or choose to self-insure. “You may be able to adjust your workers’ compensation premiums if you have reduced the size of your team and the staff wages you pay,” recommends Clark.

You may also be able to adjust your premiums if your stock levels and their value have dropped. But, when changing any insurance policies, make sure you don’t break any of the obligations to which you are legally bound in leases or mortgages.However, for businesses suffering short-term cash flow challenges, it may be possible to defer premium payments for a period.

“Also consider spreading premium payments by using premium funding to assist with cash flow,” Clark adds.

Business conditions have vastly changed since the start of the year. But there are still opportunities for savvy firms willing to identify opportunities in the business landscape and come to terms with changed trading conditions. Companies taking this approach are likely to survive this period and put themselves in an even better position post COVID-19.

Important note
This information is provided to assist you in understanding some of the common considerations in reviewing your insurance policies in particular. It is not complete, so please request full details from your Steadfast insurance broker.  Deductibles, exclusions and limits apply to most insurance policies.  Insurance policies issued by various insurers can differ.

Important disclaimer – Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers.

The information provided here is general advice only.

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