Australian businesses are running out of cash

Australian businesses are running out of cash according to a survey done by the Australian Bureau of Statistics (ABS).

Reporting by the Australian Financial Review of the survey showed that around 30% of small businesses have cash on hand that will last for less than three months of business operations. It gets worse for larger businesses – 24% of medium businesses and 12% of large businesses have less than three months of cash to support business operations.

The survey was done on 2,000 businesses between 10 June 2020 and 17 June 2020.

The ABS said: “Several businesses commented that existing cash on hand would not be sufficient to maintain operations if not for government support measures.” Government measures like jobkeeper and the cashflow support are due to expire at the end of September 2020.

Revenue has also been heavily affected. Around a quarter of businesses suffered a revenue fall of up to 25%, 37% of businesses saw revenue drop between 25% to 50%, 17% of businesses lost 50% to 75% of revenue and 14% suffered a revenue hit of more than 75%.

What does low cash mean for ASX shares?

Cash is extremely important. You could say cash is king. Businesses need cash to pay for their wages and other expenses.

Many businesses have done capital raisings to ensure their balance sheets remain in good shape through this difficult time. Shares like National Australia Bank Ltd (ASX: NAB), Bapcor Ltd (ASX: BAP), InvoCare Limited (ASX: IVC), Webjet Limited (ASX: WEB), Challenger Ltd (ASX: CGF), Flight Centre Travel Group Ltd (ASX: FLT), Cochlear Limited (ASX: COH), Lendlease Group (ASX: LLC), Ramsay Health Care Limited (ASX: RHC) and Bendigo and Adelaide Bank Ltd (ASX: BEN) are just some of the news to undertake a capital raising to ensure they have enough liquidity.

For me, I think businesses running low on cash is obviously worrying for ASX shares that have a focus on business customers like NAB and Australia and New Zealand Banking Group (ASX: ANZ).

There are other ASX shares with a focus on business customers like Xero Limited (ASX: XRO) and Prospa Group Ltd (ASX: PGL), but it’s hard to say how they will be affected.

Banks are already expecting that not all businesses will make it through this difficult period. That’s why the big ASX banks of ANZ, NAB, Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have all collectively provisioned billions of dollars for COVID-19 impacts.

Prime Minister Scott Morrison himself has warned that not every job and business can be saved. Time will tell how many businesses end up going under.

Thankfully most ASX shares seem to be doing okay through this period. Virgin Australia Holdings Ltd (ASX: VAH) has been the highest profile casualty so far, but it’s getting close to a rescue deal. The airline is in the final stages of a saviour selection process.

What ASX shares could be worth buying?

There is a still a lot of uncertainty. There are growing infection numbers in several countries.

Valuations of some shares like Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and Xero are running hot again. Growth shares will probably do well over the long-term, but over the short-term they may be a little too expensive today if growth is hurt over the rest of 2020.

I like the idea of investing in shares that can keep growing regardless of what happens next. I’m thinking of shares like Fisher & Paykel Healthcare Corp Ltd (ASX: FPH), Bubs Australia Ltd (ASX: BUB), A2 Milk Company Ltd (ASX: A2M) and Pushpay Holdings Ltd (ASX: PPH). These businesses are generating positive operating cash flow. 

Defensive shares that may be fairly immune to more COVID-19 disruptions could also be solid ideas like APA Group (ASX: APA), TPG Telecom Ltd (ASX: TPM), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and CSL Limited (ASX: CSL).