The impact of COVID-19 on Australian businesses will not be uniform; it may be reflected d in the earning stream of some entities, the multiple (risk factor) for others, or perhaps both. Under normal trading conditions, where an entity has a history of profitability it is future earnings of the business that are important.
Whilst the value of your business may be affected in the short-term, it is likely that in the future this period will be disregarded as a one-off non-recurring event. For some, this may not be without a material short term cost.
Our Forecasting Tips
To protect or restore the value of your business we set out our top Forecasting Tips below:
1. Adopt credible revenue growth/recovery estimates
No one knows the shape Australia’s economic recovery will take. Use your historical performance as a guide only. Make your revenue estimates credible and remember that your debtors may also face constraints which will impact on your ability to collect outstanding funds.
2. Stay close to the numbers and update them as more facts are known
There may be a mix of revenue that has been lost forever and built up demand that is waiting for supply chains to reopen. Keep track of how your budget compares to actual.
3. Identify/test revenue drivers and consider essential expenses and divisions
COVID-19 has offered us a global reality check regarding what is really essential. Use this as an opportunity to identify/test which economic indicators or activities drive your revenue and which expenses are nice to have but are not adding value.
4. Consider loans, deferrals and new projects carefully
While there are record-low interest rates, not everyone can take advantage of them due to the conservative attitude of the banks following the Royal Commission.
This means that some businesses will turn to non-traditional banks for funding who typically charge a higher interest rates and set up fees.
If you do require funding to assist with cash flow be disciplined in how you apply the funds and forecast the impact on your balance sheet both in the short and long term.
How can we help?
Pilot can assist with:
- Preparing or reviewing monthly cash flow projections through this period;
- Undertaking a business or entity valuation; and/or
- Providing expert restructuring advice should the need arise.