How Crowdfunding is helping the Australian COVID-19 Cashflow Gap
Even in normal times small businesses in Australia, like elsewhere, are fighting against the odds.
According to the Australian Bureau of Statistics, 60 per cent of the nation’s small businesses are forced to cease operating within their first three years.
Contrary to popular belief, the primary reason for early stage business failure is not lack of profit.
Data from the Australian Securities and Investments Commission indicates that 44% of businesses can be put down to poor strategic management, 40% due to inadequate cashflow and 33% suffering from trading losses.
Today, the coronavirus pandemic has generated a major economic crisis around the world.
Many Australian small business owners are facing unprecedented challenges. COVID-19 has led to a sudden substantial drop in sales for some companies, whilst others have had their operations suspended completely.
In the best of times cashflow can be tight for many small businesses. In these extreme circumstances the cash inflows have been turned down or turned off over a very short period but the cash outflows remain in place.
Businesses are often tied into leases and have a number of fixed overheads that they cannot get out of in a 3-4 week period which has been the timeframe over which sales have suddenly fallen away. It will often not be possible to cut variable costs either over such a short period.
Labour is often a large cost factor and even where tough decisions are being taken wages need to be paid for a period or redundancy costs. Payments do not stop automatically and this is why many governments around the world have stepped in to offer liquidity support through the coronavirus crisis. However, not all businesses will qualify and for the ones that do the funds may not be sufficient or come soon enough.
Some businesses have been quick to use all tools they can to manage their cashflow and as they work tirelessly to rescue their operations and survive the lockdown.
One such tool being used is crowdfunding.
Reward based or product based crowdfunding is often used for start-ups to help them get off the ground and grow.
It is often used by entrepreneurs who are developing a new product. The new product development may involve a high upfront cost and without a certain number of orders the unit price of their product will be too high rendering their business model invalid.
Australian reward-based crowdfunding platform ReadyFundGo has helped a variety of businesses over the years with both cashflow and achieving a minimum number of orders before they started production.
Urban Extreme, the indoor snow and ski board centre in Brisbane, used crowdfunding to help with their cashflow when they were starting out. The centre had taken out the building lease and were building their indoor slopes. They knew it would be 6 to 8 months before they could open their doors.
Instead of waiting until the centre was complete before generating income, they created a ReadyFundGo crowdfunding campaign to pre-sell tickets in advance to help manage their cashflow creating cash inflow before they had opened.
Another example from the crowdfunding platform is a Tasmanian brewery, The Eleventh Order, which pre-sold over 650 of their 500 ml bottles of beer before they started production.
Today with the COVID-19 crisis we are starting to see existing businesses rather than start-ups use reward-based crowdfunding to help manage their cash-flow and fight to stay solvent.
A great example of the use of crowdfunding as a result of the coronavirus crisis is the campaign created by the Packing Shed at Lawnbrook. Rebekah Wilson from the Perth Hills has created a campaign to help rescue their 2020 vintage.
Rebekah and her husband are the owners of a Bickley Valley vineyard, winery and restaurant. Their vineyard and home are all on the same property. Like many Australian small businesses everything is on the line.
Since the restrictions imposed by the COVID-19 pandemic, the industry has been decimated.
For Rebekah and her family making wine on the scale they do cannot support their family. They have no other income now from the property and a chain of people who rely on the wine-making process to pay their bills.
The 2020 vintage was shaping up to be a “ripper” according to Rebekah after hot and dry growing conditions and an abundance of blossoms. The fruit has been amazing and it would be a tragedy if the wine did not get produced and make it to Australian’s tables.
They have created a crowdfunding campaign with Australian crowdfunding platform ReadyFundGo. They are offering their most popular table wines that are close to being ready at significant discounts.
As of today their Mr Posy classic white Semillon sauvignon blanc is leading the pre-orders followed closely by their Rusty Pony, a French-styled rose.
The campaign has raced off to a great start with 67 pledges as of today and 73% of their target achieved.
The “Lawnbrook Estate V2020 COVID-19 Rescue Package” campaign is an excellent example of how crowdfunding can be used to help existing businesses survive the coronavirus crisis.
If you are in a similar position, check out their campaign page and see how you could use crowdfunding for your business.
If you are ready to start your campaign you can start HERE today.
Alternatively if you would like to learn more about what is required to create a successful campaign you can download the ReadyFundGo guidebook to creating a successful campaign here.
Although, crowdfunding will help some businesses it will not be suitable for all.
Another tool that businesses will find extremely useful during these challenging times is FlowCash
FlowCash is a cloud based cashflow forecasting and management app that gives proprietors full control of their organisations’ cashflow.
This tool was developed at just the right time by Damon Wells. Damon, a Fellow of CPA Australia and former Director of The Tasmanian Chamber of Commerce, has advised businesses for over 30 years using his cashflow management expertise.
Damon can be contacted at damon@flowcash.com.au
We wish all businesses well during the unknown period of this crisis and hope that proprietors, their staff and families will stay safe and well.
