The coronavirus outbreak is having a ripple effect on the worldwide economy, from wedding dress shortages to the Australian tourism industry. 

Many businesses are having trouble importing or exporting the products they need due to the coronavirus. If this is the case for your small business, it could impact your business financially. Now is the time to get on the front foot, by:

  • assessing your position; and
  • negotiating with your bank and landlord. 

This article provides practical guidance on how to manage these issues to help your business survive this difficult time.

Assess Your Position

If your business has been impacted by the coronavirus, you need to quickly assess your current financial position. You need to consider:

  • how much capital you have to ride out the loss of revenue or supply;
  • if there are other sources of supply if your current supply is temporarily affected by travel suspensions; and  
  • if you need to assess your staffing levels and contract future orders to deal with the anticipated downturn.

When making this assessment, there may be a number of issues that arise. For example, you may need to consider how any upcoming marketing expenses or conference attendance will be affected. You may need to contact your suppliers to gain a clear understanding of who may be affected and who may not.

Instead of simply going through the motions as if nothing has changed, you should get ahead of the curve and actively assess your current position. Making changes now could prepare your business for any disruption to come.

Develop a Business Strategy

For small businesses, there are two key parties that you will need to consider when dealing with a disruptive downturn:  

  1. your banks; and
  2. the landlord.

Dealing With Your Banks

If you have equipment on finance or a business loan, now is the time to assess those funding arrangements. You need to ensure they are adequate to deal with any cash flow issues that may arise. 

You should develop both a business plan and a cash flow analysis to get on the front foot with your lender and inform them of your projections. The banks may be swamped with requests to renegotiate the terms of business loans. So, it is better to get in early and deal with any potential issues from the outset.

You need to ensure that you pay all loans on time and do not breach the terms of your loan. Instead, you should first renegotiate the loan payment terms with your bank. Banks have the ability to take security if you fail to pay your loan on time. Therefore, explaining your situation to the bank and negotiating any loans should be one of your first priorities if you are having cash flow issues.

If the bank is unwilling to renegotiate, you can defend yourself against the bank taking immediate action against you, using force majeure arguments.

Force majeure principles argue that during certain extreme unexpected circumstances, some contractual obligations (such as loan repayments) should be suspended. 

This suspension occurs as the unexpected event makes it impossible for you to fulfil your contractual obligations, like loan repayments. If you find yourself in a situation like this, your legal advisor will need to carefully consider whether they can raise a force majeure argument.

Dealing With Your Landlord

If you are finding it difficult to pay rent, you should reach out to your landlord. If you do not communicate with the landlord and explain your situation, you may face being evicted from the premises.

There are now various government codes and policies in place both nationally and at the State level which seek to provide guidelines around rental moratoriums and a suspension of evictions for commercial tenants.  Although none of these codes or guidelines requires landlords to give you a complete waiver of rent, there are guidelines now requiring landlords to reduce rent in proportion to the drop in sales.  There is also a six month moratorium on evictions. You should make yourself aware of these new guidelines and use them in your negotiations with the landlord. You will need to proactively contact your landlord and seek a rent reduction and provide financial information to support your argument that sales have declined. 

If you cannot pay any rent at all, you should obtain legal advice regarding whether any force majeure type argument can be raised in the context. This will critically depend on the terms of your lease, and it will be important to obtain professional advice to better understand the implications of the use of this argument.

Although by no means a certain argument, at least this kind of argument may allow you to negotiate a termination of the lease and a cessation of the obligation to pay rent, although of course you may need to give up possession of the premises as well.

JobKeeper and Government Assistance

Finally, the Commonwealth Government has announced the JobKeeper package which essentially subsidises the retention of employees in circumstances where you might otherwise have stood them down or otherwise terminated their employment.  Details of the JobKeeper package can be found here.  You should take this opportunity to apply for whatever government assistance is being offered.  These are difficult times and the government is offering some assistance to ensure small businesses are supported during these extraordinary period of financial stress.

Key Takeaways

These are difficult and fraught times for many small businesses, particularly importers and those reliant on the tourism trade. It is crucial to take proactive steps and assess your situation early to start negotiations with different parties to gain an accurate picture of your options. If you have any questions about your options if your business is suffering due to the coronavirus outbreak, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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