Forecasting in a Pandemic

Clarke McEwan Accountants

Understand where you stand now

Businesses fail (or fail to thrive) for a myriad of reasons, but the precursor is often a failure to understand what is occurring and what to monitor. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are - the things that make the difference between doing well and going under - then it's time to find out.

Understanding your cost structure

Do you know what your real cost of doing business is? Your breakeven point is the level of sales activity where your business is neither making a profit or a loss. Calculate your breakeven point by dividing your fixed expenses by your gross profit margin. This figure represents the level of sales income you need to breakeven.

Understanding your breakeven point is crucial particularly when supply chains are impacted.

Not only will your breakeven point assist you to monitor business performance, it's critical when deciding whether or not to offer a discount. If your breakeven point is well below your current operating level then you have a good buffer in your profits to manage growth, invest in further capital opportunities, and to protect yourself against further downturns in operating performance. And before you say "I know that," ask yourself how many people actually put this theory into practice. Even some of the largest businesses have been caught out on this one and tie up valuable resources in unprofitable projects and products.

Putting up your prices during down times is not an act of social betrayal. If your prices have increased you should flow these through unless you are comfortable making less for the same amount of effort, or you are in an industry that is so price sensitive you have no choice but to follow the lead of larger businesses.

Discounting creates a leverage impact on profits. By discounting you are giving away some or all of your profits. The key is to understand the impact and just how far you can go. For example, a business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today's market) needs a 500% increase in sales volume just to maintain the same position – and, in almost all cases, that's just not going to happen. The result generally is that the business trades below its breakeven point and generates a loss. You can only do that for a limited amount of time (and some of your larger competitors might be engaging in a discounting war with you in an attempt to bury you once and for all).

If your business needs cash and needs it quickly, discounting might be the only way to shift stock but understand the implications.

Plan, review and adjust

Your budget should be your best estimate of what is likely to occur based on current knowledge. To manage change, you can scenario plan where your budget forms the baseline, but you also forecast best and worst case scenarios based on potential risks and their likelihood (for example, the impact of another lockdown). Or, the simplest method is to use your budget as a baseline and regularly review and adjust depending on current conditions.

The greatest risk to your profit is unlikely to come from your cost structure. It is more likely to be revenue volatility. Keep your eye on your cost structure and make sensible cuts where appropriate. But, in your search for savings don't remove your essential revenue generating capacity that you need.

A lack of profit will eventually erode your business, but not enough cash will kill it stone dead. Businesses will fail because they don't manage their cash position. Plan, track and measure your cashflow. This not only means closely monitoring your debtor collections and inventory but also running a rolling three month cashflow position. This should provide an early warning of brewing problems.

Manage your debt levels carefully (your bank is likely to). While there is nothing wrong with debt, it is likely that the banks will be closely watching customer accounts. Where you have loan facilities in place make sure that you understand the loan terms and any debt covenants that you have entered into. These covenants could include regular reporting to the bank, debtor and working capital ratios, or debt to equity ratios. Where the banks may have been more relaxed about these in the past, this year will be different. If you believe that you need additional funding, talk to your bank early and don't wait until the last minute. You'll need to present your case on why you need it, how much, for how long and when it will be repaid.

Cash flows, operating budgets, cost control and debt management all need to be part of your business management. The more in control you are the lower your risk position.

Understand the external environment

The COVID-19 pandemic has implications well beyond the economy; it has changed how business operates and how consumers act. While comparisons are made to the 2008 Global Financial Crisis and the recessions of the 1980s and 1990s, the reality is, we have no case study. There is no rule book for the post pandemic road to recovery as this is not an economic event. The pandemic pulls the economy up short curtailing both supply and demand; businesses are not operating at capacity and fewer people are working.

The Federal Budget is released on 6 October and we're expecting to see the Government invest heavily in job creating projects. Many of these will be focussed on infrastructure. Each of these projects will have a flow through effect to the broader economy. We'll bring you our insights the day after the budget and you should loom to see if there are opportunities your business can capture.

Understanding your supply chain is important. Risk manage and plan for changing conditions. For example, what is your business's ability to manage a surge in demand, do you have a small supply base and what would happen if your primary supplier went into bankruptcy, do you have a good flow of information across your supply chain or is there a lack of transparency and knowledge, do transport problems risk your ability to supply? Assess it, understand it, and manage the risks.

When it comes to demand, there is no instant fix. The RBA suggests the decline in GDP in the first half of 2020 is around 7% and the contraction in hours worked around 10%. The economic impact of the restrictions in Melbourne extend well beyond Victoria and are impacting more generally on consumer sentiment. This week we expect Australia to have a formal "recession" label added to our economy, formalising what most business operators already know.

But it is not all bad news with confidence lifting on early signs that revenue is no longer declining for the majority of Australian businesses. The latest ABS data on the impact of COVID-19 shows fewer businesses reported a decline in revenue in August (41%) compared to July (46%), and fewer still expect a decline in September (28%).

However, 35% of businesses expect it to be "difficult or very difficult" to meet financial commitments over the next three months, with small and medium businesses almost twice as likely as large businesses to fall into this category. Understandably, the response to this question is heavily weighted towards those operating under Government required restrictions and lockdowns.

The RBA is working with three scenarios for Australia's economic outlook: a baseline, upside and downside scenario. In the baseline scenario, conditions improve in the second half of 2020 and slowly improve over 2021 and 2022 but fall short of returning to pre COVID forecasts with Victoria's lockdown not materially extended and Australia's international borders remaining closed until mid 2021. The upside scenario saw no extension of the Melbourne lockdown, and further easing of Government restrictions nationally, which in turn bolster consumer confidence, encouraging spending and the reversal of GDP decline over 2020-21. The downside scenario envisages a global resurgence in infections with Australia facing periodic outbreaks and rolling lockdowns. The RBA notes that the downside scenario has a sharper fall than the increase of the upside scenario because of the damage to consumer confidence of further lockdowns.

Business investment is also expected to be relatively flat with the ABS survey showing that 37% of those surveyed had no actual or planned expenditure. Of those that are spending, IT hardware and software, and equipment and machinery topped the list. The instant asset write-off is helping to stimulate business investment in the small and medium business sector. In general, large businesses are paying down debt rather than spending and small and medium businesses have not sought to extend debt to fund investment.
Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

By Clarke McEwan September 17, 2025
Would your business still thrive, or would it suffer a catastrophic failure if you suddenly stepped away? It’s tough to remove yourself from the day-to-day operations when you’re passionate and busy. However sudden accidents, illnesses, or family emergencies can – and will – happen and you need to be able to step back knowing your systems are robust enough to cope. Build in resilience For your business to work for you, you need to make yourself replaceable. Large corporations have plans in place to mitigate what’s known as ‘Key Person Risk’. But when you run a small entrepreneurial venture, who is the backup?  The more you can train and empower your team to perform the business’s essential daily functions without micromanagement, the closer you'll be able to enjoy a lifestyle business. Establish repeatable and scalable support infrastructure to run the daily operations and create a great team that you can lean on. Your staff need a common purpose – knowing why what they’re doing matters – as well as clear expectations around their roles. By creating a suitable work environment, where employees both individually and as a team are more efficient and likely to enjoy what they do, you’ll breathe easier knowing they have your back (and your business) in an emergency. Finally, it’s important to know what the business looks like without you. An exit strategy is often thought of as the way to end a business — which it can be — but in best practice, it’s a plan that moves a business toward long-term goals and allows a smooth transition to a new phase. That may involve re-imagining business direction or leadership, keeping financially sustainable, or pivoting for challenges. A fully formed exit strategy takes all business stakeholders, finances and operations into account and details all actions necessary to sell or close. Strong plans recognise the true value of a business and provide a foundation for future goals and new directions. Top Tips: 1. No one is irreplaceable – Challenge yourself to step away for a week. Which systems fall over? Which procedures get left hanging? Which duties get ignored? Go cold turkey as a test case for the time you may have to leave your business in the hands of others. 2. Embrace innovation – Get systems that are simple, streamlined, effective and can be used by multiple key team members. Make sure anyone can log in and see exactly what’s needed for what reason at any time. 3.Recognise the value you’re creating - A business that doesn’t rely on its owner is worth a lot more when the time comes to sell or pass the reins to someone else. Talk to our team about structuring your business to make it more reliable.
By Clarke McEwan September 16, 2025
Working for yourself or running your own business? Setup robust systems for expenses & tax requirements so you can focus on your important tasks. We can help take the headaches out of your business accounting. #freelancelife #taxtalk #smallbusinesstips #contractors #medicalcontractor #businesscontractors #ABN
By Clarke McEwan September 9, 2025
20% reduction in student debt The reduction is expected to benefit more than 3 million Australians and remove over $16 billion in outstanding debt. The 20% reduction will be automatically applied to anyone with the following student loans: · HELP loans (eg, HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP, OS-HELP) · VET Student loans · Australian Apprenticeship Support Loans · Student Start-up Loans · Student Financial Supplement Scheme. The reduction will be based on the loan balance at 1 June 2025, before indexation was applied. Indexation will only apply to the reduced balance. The ATO will apply the reduction automatically on a retrospective basis and will adjust the indexation that is applied. No action is needed from those with a student loan balance and the Government has indicated that you will be notified once the reduction has been applied. If you had a HELP debt showing on your ATO account on 1 April 2025 but you paid the debt off after 1 June 2025 then the reduction will normally trigger a credit to your HELP account. If you don’t have any other outstanding tax or other debts to the Commonwealth, then the credit should be refunded to you. The HELP debt estimator is a useful tool to get an idea of the reduction amount, please reach out if you need any help in working out eligibility. Changes to repayments The Government has also modified the way that HELP and student loan repayments operate, primarily by increasing the amount that individuals can earn before they need to make repayments. The minimum repayment threshold for the 2025-26 year is being increased from $56,156 to $67,000. The threshold was $54,435 for the 2024-25 year. Under the new repayment system an individual will only need to make a compulsory repayment for the 2025-26 year if their income is above $67,000. The repayments will be calculated only against the portion of income that is above $67,000. Repayments will still be made through the tax system and will typically be determined when tax returns are lodged with the ATO. For many people the change in the rules will mean they have more disposable income in the short term, but it will take longer to pay off student loans. The main exception to this will be when an individual chooses to make voluntary repayments.
By Clarke McEwan September 9, 2025
The Productivity Commission (PC) has been tasked by the Australian Government to conduct an inquiry into creating a more dynamic and resilient economy. The PC was asked to identify priority reforms and develop actionable recommendations. The PC has now released its interim report which presents some draft recommendations that are focused on two key areas: · Corporate tax reform to spur business investment · Where efficiencies could be made in the regulatory space (ie, cutting down on red tape) The interim report makes some interesting observations and key features of the draft recommendations are summarised below. Corporate tax reform The PC notes that business investment has fallen notably over the past decade and that the corporate tax system has a significant part to play in addressing this. The PC is basically suggesting that the existing corporate tax system needs to be updated to move towards a more efficient mix of taxes. The first stage of this process would involve two linked components: · Lower tax rate: businesses earning under $1 billion could have their tax rate reduced to 20%, with larger businesses still subject to a 30% rate. · New cashflow tax: a net cashflow tax of 5% should be applied to company profits. Under this system, companies would be able to fully deduct capital expenditure in the year it is incurred, encouraging investment and helping to produce a more dynamic and resilient economy. However, the new tax is expected to create an increased tax burden for companies earning over $1 billion. Cutting down on red tape The interim report notes that businesses have reported spending more time on regulatory compliance – this probably doesn’t come as a surprise to most business owners who have been forced to deal with multiple layers of government regulation. Some real world examples include windfarm approvals taking up to nine years in NSW while starting a café in Brisbane could involve up to 31 separate regulatory steps. The proposed fixes include: · The Australian Government adopting a whole-of-government statement committing to new principles and processes to drive regulation that supports economic dynamism. · Regulation should be scrutinised to ensure that its impact on growth and dynamism is more fully considered. · Public servants should be subject to enhanced expectations, making them accountable for delivering growth, competition and innovation. These are simply draft recommendations contained in an interim report so we are a long way from any of these recommendations being implemented. However, the interim report provides some insight into areas where the Government might look to make some changes to boost productivity in Australia. The PC is inviting feedback up until 15 September on the interim report before finalising its recommendations later this year.
By Clarke McEwan September 9, 2025
Back in March this year the Government announced its intention to ban non-compete clauses for low and middle-income employees and consult on the use of non-compete clauses for those on higher incomes. The Government has indicated that the reforms in this area will take effect from 2027. This didn’t come as a complete surprise as the Competition Review had already published an issues paper on the topic and the PC had also issued a report indicating that limiting the use of unreasonable restraint of trade clauses would have a material impact on wages for workers. Treasury has since issued a consultation paper, seeking feedback in the following key areas: · How the proposed ban on non-compete clauses should be implemented; · Whether additional reforms are required to the use of post-employment restraints, including for high-income employees; · Whether changes are needed to clarify how restrictions on concurrent employment should apply to part-time or casual employees; and · Details necessary to implement the proposed ban on no-poach and wage-fixing agreements in the Competition and Consumer Act. Treasury makes it clear that the Government is not planning to change the way the rules apply to restraints of trade outside employment arrangements (eg, on sale of a business) or change the use of confidentiality clauses in employment. If the proposed reforms end up being implemented, then this could have a direct impact on a range of employers and their workers. Existing agreements will need to be reviewed and potentially updated. However, it is too early at the moment to guess how this will end up, we will keep you up to date as further information becomes available.
By Clarke McEwan September 9, 2025
On 1 July 2025 the superannuation guarantee rate increased to 12% which is the final stage of a series of previously legislated increases. Employers currently need to make superannuation guarantee (SG) contributions for their employees by 28 days after the end of each quarter (28 October, 28 January, 28 April and 28 July). There is an extra day’s allowance when these dates fall on a public holiday. To comply with these rules the contribution must be in the employee’s superannuation fund on or before this date, unless the employer is using the ATO small business superannuation clearing house (SBSCH). The ATO has been applying considerable compliance resources in this space in recent years which can have an impact on both employees and employers. Employers To be eligible to claim a tax deduction on SG contributions the quarterly amount must be in the employee’s super account on or before the above quarterly due dates. The only exception to this is where the employer is using the ATO SBSCH. In that case a contribution is considered made provided it has been received by the SBSCH on or before the due date. Employers using commercial clearing houses should be mindful of turnaround times. Commercial clearing houses collect and distribute employee contributions and may be linked to accounting / payroll software or provided by some superannuation platforms. Anecdotally it seems that turnaround times for some clearing houses could be up to 14 days, so it is recommended that employers allow sufficient time before the quarterly deadlines when processing their employee SG contributions. If these deadlines are missed (yes even by a day!) that will trigger a superannuation guarantee charge (SGC) requirement which will result in a loss of the tax deduction and other penalties. The SGC requirements are outlined in the ATO link below: The super guarantee charge | Australian Taxation Office Employers do have the option to make SG payments more frequently than quarterly and this is something that employers will need to become used to if the proposed ‘payday’ superannuation reforms become law. This change is proposed to commence from 1 July 2026 and would require SG to be paid at the same frequency as salary or wages. There is some discussion on the payday super proposal at this link (noting that this is not yet law). The SBSCH will close at this time so employers using this service should start to consider transitioning to a commercial clearing house, please let us know you would like assistance with this. Employees It is recommended that you regularly check your superannuation fund statements and reconcile employer contributions to the amounts listed on your pay slips. Where SG contributions are not received on time (or at all!) employees are encouraged to discuss this first with their employer. Should this not result in a satisfactory conclusion, employees can consider bringing this to the attention of the ATO. There is some helpful discussion on this process at the following link .
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