How to bolster financial resilience?

Financial resilience is the capacity to endure and rebound from temporary financial distress and disruption. Rather than a reactive response to an urgent need, resilience is a long-term, ongoing, and sustainable mechanism that can be prepared and nurtured. The aim of a financial resilience-led strategy is to strengthen businesses for a long duration. By developing the practices of savings, debt reduction, and smart money management; financially resilient consumers are able to survive the ‘new normal’.

Even prior to the pandemic, more than two million Australians had ongoing financial distress, and about half of working households had cash in the bank.

Importance of being Financially Resilient

As the ramifications of the COVID-19 economic upheaval continues, companies expect possible impacts on profits, financing, and liquidity – and are implementing crisis scenarios and strategies. Many organisations continue to carefully consider how these scenarios can flow to forecasts, budgets and financial information prepared for their various stakeholders, and how to communicate these plans to their stakeholder groups – especially lenders.

While the Federal government has stepped in to provide income assistance for those in need , there are also steps Australian business owners should take at a personal level to improve their financial resilience as the pandemic unfolds.

Most Effective Ways to Gain Financial Resilience

1. Create a concise budget
   

   Never underestimate the power of a detailed budget, listing planned revenue and expenditure, including unusual costs (or outgoings), for the coming months and throughout the year.

   Budgets typically look considerably different in times of a crisis. It is recommended to be more conservative in calculating projected income in the light of the current market and economic conditions, and expenditure might also need to be decreased where possible. It’s worth looking at the Australian Securities and Investments Commission’s

2. Restructure Debt
   

   Restructuring debt is another way to reduce debt-to -capital ratio. If a company pays comparatively high interest rates on its debts and new interest rates are considerably lower, the company may consider refinancing its existing debt.

   This would minimise all interest and monthly costs, boost the company’s bottom-line revenue and cash flow, and increase its capital base. This is a popular and transparent approach used to broker fair deals for businesses and its outflows.

3. Avoid Scams and Costly Errors
   

   Uncertain times and difficult periods are attractive, peak seasons for financial scammers. There have been several scams throughout the COVID-19 crisis, including offers to access high-return investment opportunities.

   Your company holds confidential information and data that cyber criminals are motivated to obtain. Criminals are innovative and actively discovering new ways to generate access to this data and information, regardless of whether it is submitted by email or saved on your hard drive. Learn to identify common web scams such as phishing, pharming, and ransomware to mitigate risk of being trapped.

4. Succession Planning
   

   COVID-19 has had a significant effect on business activities in a variety of sectors, however it has also shed light on the core aspect of sound business management – succession planning.

   The general priorities of a comprehensive succession plan include the company’s long-term sustainability, confirming that all staff and clients are taken care of, providing financial stability for themselves and their families, and preserving the value of the company.

   In the wake of the current global emergency, consider important elements as you create or revisit your overall succession plan.
   
   

5. Seek help
   

   Coraggio highlights four key areas towards achieving business objectives: