Australian gross domestic product (GDP) dropped by 0.3 per cent in the March quarter, the first time the nation has experienced an economic contraction in 29 years. It’s likely the economy will also shrink during this quarter.
Although the business environment is difficult, there is plenty of opportunity for individual businesses to take the initiative to maintain revenues and profits. Insurers are also willing to work with firms during this time to maintain cover where possible and support policy holders.
Chartered accounting firm Pilot Partners’ associate director Cameron Woodcroft says a useful approach businesses can take during a downturn is to assess which factors are in their control and do what they can to make the most of them.
“Determine your position in all facets of your business, including your workforce, operations, supply chain, liquidity, cash flow and business strategy. Once you know where you are, you can identify the factors that either need to be accelerated or slowed down to both conserve and also generate momentum,” Woodcroft says.
“Remember, being flexible will help your business adapt. Through this process, you may discover better ways to operate your business after the downturn,” he advises.
“A cash flow forecast helps to highlight current expectations and it’s also an opportunity to forecast worst-case scenarios”
It may be an appropriate option for businesses that may not have the full amount for the total year’s insurance policy available now but have the ability to pay it off over time.
It may also suit businesses that can generate more profit from using the cash to invest in stock or other parts of their business rather than paying insurance premiums upfront. In this situation, the cost of the premiums is less than the profit that can be earned otherwise.
Premium funding is also an alternative to approaching a bank for funding. Premium funders typically won’t require collateral in the same way a bank may require security, for instance a charge over the business owner’s property.
It’s important businesses that are experiencing cash flow issues in the current climate understand there are options to maintain cover during this difficult period. These businesses should talk to their broker to try to find a workable solution. During this period, it’s essential to keep the lines of communication open and keep brokers across the organisation’s circumstances and how they may be changing. That’s a good way to help ensure the firm is appropriately covered through the business cycle and beyond.