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Risk management: How to future proof your business’s finances

With many small-to-medium businesses feeling the lockdown pinch and uncertain about their recovery post-corona, we turn to risk management expert Jacqui Colwell from Judo Bank. With over 30 years of experience in financial services, Colwell shares her insights on how to navigate the path ahead and manage future market risks. 

Q&A with Jacqui Colwell, Chief Risk Officer and Co-Founder, Judo Bank

What are the biggest long-term consequences of the COVID-19 crisis on small to medium businesses?

A key issue will be debt levels for small businesses and whether these debts will be able to be repaid from sustainable cash flows as revenues may not return to pre-COVID levels. Consequently, during the hibernation period, many businesses have had to defer their loan and/or interest repayments and rent deferrals which will result in increased debt levels after this period.

In addition, many other small businesses will require additional funding for operational costs, such as restocking, coming out of hibernation. This will be compounded by lower revenues initially post-hibernation. The economy will be depressed for some time and people will make changes to spending habits post this event. This may result in many businesses with debt levels that are unsustainable post the pandemic and will require either equity to sustain or significant changes in their business model.

What’s the market outlook for small business lending for the rest of 2020?

I think the market will remain strong. However, it will be difficult for lenders to assess lending applications solely on historical financial performance. A greater reliance will need to be placed on projections of sustainable cash-flows post the event. There will also be a greater emphasis on management capacity and capability. It will be important to build a strong relationship with banks and discuss challenges. On the other hand, many business and industries have had positive impacts from COVID-19 and will seek opportunities in the market. 

What will be the biggest economic challenges for small businesses economically in the recovery process? 

The pace at which the economy returns to “normal” or what will be the “new normal”. Revenues may not return to pre-COVID levels as people’s spending habits will be affected by the COVID-crisis. People may focus on saving and spend less money overall, which is typical consumer behaviour during economic downturns. 

How do you think small businesses can future-proof their finances for unexpected situations like COVID-19 or bushfires?

Retain levels of capital in your business and manage debt levels. Businesses that had sufficient levels of equity in their business are able to withstand longer periods of financial stress. As such, many businesses were actually better prepared for this pandemic than the GFC – due to a recent prolonged period of record-low interest rates. Therefore businesses had managed to reduce debt and retain higher levels of capital prior to COVID-19.

What overarching lessons has COVID-19 taught us about global economic events and how can businesses in Australia safeguard themselves?

Markets have a way of correcting themselves.  Boom periods always end. Ensure diversity of supply and maintain a level of flexibility in your business model.

Jacqui Colwell, Chief Risk Officer and Co-Founder, Judo Bank


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