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Two Ways to Prepare Business Cash Flow For a Lockdown

Early 2021 saw two weeks of covid restrictions for Perth which stung many local businesses with their cash flow in lockdown.

This lockdown showed us that no matter where you are, it is good to have a plan in place for your business in case of a lockdown in 2021.

Research has shown that cash flow is a significant problem for businesses in such times.

Don’t be the business owner who gets to a lockdown and has no idea what to do. Be the business owner who is cash-flow-ready in the event of an outbreak.

There are two key ways businesses can prepare for a cash flow disruption caused by a lockdown.

The first is to know your business expenses inside out and back to front.

Being a business owner is busy work. Your entire day can be consumed without even getting to start the thing you told yourself you would do first thing in the morning.

This means that for many business owners, understanding the finer details of their business expenses often takes a back seat.

But having a thorough understanding of your expenses could be the difference between success and failure in the event of a lockdown.

And you don’t want to wait for a lockdown to understand them. Don’t wait for disaster – be proactive.

The second way to prepare cash flow for a lockdown is by being more risk averse than usual.

Everyone has different risk tolerances when it comes to cash flow.

This is typically a factor of two things. The first is the actual individual who runs the business and their own risk tolerance.

Some business owners are comfortable walking along that cash flow cliff edge, while others prefer to be a comfortable distance away.

The when it comes to risk tolerance is the type of business and industry. Some industries carry with them inherent cash flow risk, whereas other are less so.

But regardless of how risk tolerant you are in normal times, it could pay to be more risk averse with a potential lockdown on the horizon.

A key issue for many businesses is that debtors are harder to collect during lockdown. That means money won’t be flowing in as freely as as usual.

We recommend to our clients to have reserve cash in the back to cover at least one payroll (or more) to cover for not being able to collect money during a potential lockdown.

If you would like any guidance with planning your cash flow in the event of a lockdown, please do not hesitate to reach out.

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