RSM Australia

Nine steps for challenging trading conditions

Agribusinses Insights

1. Review and re-review budgets. Assumptions should be checked, and the budget revised accordingly.  The budget tells a story of what the future will bring, and this should be based in fact rather than fiction.

2. Valuation of significant assets.  Land, buildings and equipment are significant asset classes that may be devalued during an economic downturn.  Significant assets used as security for long-term debt or working capital, devalued in a downturn, reduces the borrowing potential of a business.

3. Employee entitlements & obligations. Assess employee utilisation and consider redefining roles or introducing flexible working arrangements where excess capacity can be used elsewhere in the business. 

trading conditions4. Know your working capital. Free cash flow to cover costs of stock, payroll and debt repayments. These should be reviewed on a daily, or at least a weekly basis, with consideration of forecast peak debt levels and borrowing limits.

5. Engage with your customers:

  • Periodically and consistently review outstanding accounts and follow up promptly
  • Understand your customers individual circumstances and agree on revised payment terms and limits, if needed
  • Communicate with your customers about challenges they are facing and how they are managing these challenges

6. Engage with your suppliers:

  • Review inventory and stock levels often and reduce order quantities where sales are forecast to be lower than normal
  • Request extended payment terms to balance cash flow and available working capital
  • Communicate with your suppliers about challenges your business is facing and what proactive action you are taking to mitigate risks
  • Identify alternative suppliers where your normal supply chains are disrupted.

7. Tax planning: Contact the ATO to arrange lodgement extensions and payment arrangements where needed.  Register for assistance and government incentives where available, particularly JobKeeper and Cashflow Boost for employers in relation to the government's COVID-19 stimulus packages. 

8. Additional debt/equity needs. Consider additional charges and personal guarantees required from financiers for short-term bridging finance to ride the wave back to better trading conditions. 

9. Know what you can and can’t control. Good business intelligence provides a clear and transparent view of various factors which impact success.  Some factors are within our control and others can only be influenced or simply observed. The most effort should be spent on areas which are within our control, less time on areas which can only be influenced, and the least effort expended on the areas of concern where there is little to no benefit expending energy trying to control or influence.

Business is cyclical, with ebbs and flows presenting challenges and opportunities for owners and managers.  Good business conditions can mask issues dormant in a business, which can then create challenges when the landscape becomes difficult.  Good business intelligence leads to smart decisions, particularly during challenging times.

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