As JobKeeper ends, the time for hard decisions is now

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At secondary school there were two types of kids — those who did their assignments with weeks to spare and those who left it to the last day. With JobKeeper coming to an abrupt end for many businesses this week, that same situation is occurring in the real world.

This week, for those businesses that have been clinging on to JobKeeper and hoping for a miracle, reality will strike. And tragically, many businesses, like small travel agents or restaurants are likely to face their own fiscal cliff.

The situation for those unlucky businesses is far more stark than in April 2020 when almost everyone was facing a similar predicament, rapidly cutting costs like marketing and reducing staff hours.

Now, many businesses such as those in e-commerce, real estate agents and furniture retailers are far more profitable than they’ve ever been. It is just an unlucky few who remain prevented from trading due to government mandated restrictions.

For businesses whose revenues haven’t returned to pre-COVID levels, the time for hard decisions is now.

The first decision is the biggest one: is it even worth trying to keep the business alive until revenues normalise?

For some, it may not be worth continuing. It is creative destruction wrought by government policy rather than technological change.

For others, it may be worth giving the world a chance to vaccinate their way out of COVID-19. The data coming out of the US, Israel and the UK indicates it takes around six months for a developed country to vaccinate back to normality. So, it’s quite possible that this time next year COVID-19 will be a distant memory.

Post-JobKeeper decisions

So, what should businesses do?

The first is aggressively cutting obvious costs. Any marketing expenses need to be slashed. Team members who had been receiving JobKeeper need to be asked to accept a far smaller than usual salary while they look for other roles. If revenue comes back quickly then they can hopefully return, if not, the cost is less than a redundancy.

Team members who aren’t able to do this should be paid all entitlements in full. It’s critical you do everything you can to ensure loyal employees receive all entitlements.

Next, speak to landlords and offer a significantly reduced rent with the promise of paying a higher amount when revenues return. For landlords, they are likely to have a long vacancy in any event, so they’re far better off trying to keep a going concern tenant in business. This could mean paying 10% rent for the next six months and then agreeing to a 10% rent increase post-pandemic.

Businesses should also speak to other creditors and try to negotiate extended terms. As with any negotiation, it’s critical you put yourself in the shoes of the counterparty and understand their BATNA (best alternative to a negotiated agreement). That is, if your business doesn’t exist, what will they do? You need to make an offer slightly better than that and a rational creditor will make that deal.

In all negotiations it is critical you are genuine and do everything you can to repay the favour when you can. Being arrogant or aggressive or rude is unlikely to get a sympathetic or even rational result.

For those unlucky businesses all is not lost, but this is a critical time to try and save your business.

You need to act fast and act decisively.

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