Jeff Williams is the founder of Honed Accounting and he has been my accountant for the past 10 years. I consider myself to be very blessed that I have people around me who I trust and who keep me out of trouble and Jeff is one of those people.
Today I speak to him about cash flow for small businesses in the time of Covid-19 as well as government stimulus packages.
Hope this info helps some of you! You can also see our full interview here
For small businesses, what are some of your top tips for helping them maintain cash flow
The best tip I could give for small businesses wanting to maintain cashflow is to speak with their accountant and immediately do some cashflow projections. It’s important to understand what their regular overheads are for the business, and to determine how long their existing cash will last.
They should seek advice as early as possible if there looks like there will be cashflow shortages in the coming months to take advantage of the Government backed small business lending incentives which were recently announced.
It’s very important that these small business owners also do personal cashflow planning to determine how much they will need to be able to continue maintaining their personal costs such as rent or mortgage repayments and bills. The most important thing here is forward planning and having some backup in place before it’s too late. It may also be worth assessing current available credit such as redraw on their mortgages or credit card limits as these may assist them in the short term. They should chat with their mortgage brokers or business bankers if they are unsure of how to access these funds
And if they have staff that they don’t want to lose but can’t afford to pay full time, what are some options?
First and foremost, I’d like to start by saying that if you can continue operating the business and working remotely, this should be the first option which will keep a lot of businesses operating and employees in jobs.
In saying this, all businesses are going to have different approaches when it comes to keeping staff through these tough times and every business needs to find the best way to stay alive and keep their staff.
While we can all cross our fingers and hope that no one loses their jobs, the reality is that this will happen in some businesses who simply won’t be able to survive without dropping staff costs. If your business finds itself in this position, you should be starting a dialogue with your staff as soon as possible to try to come up with suitable outcomes for your business and for your staff – after all, there’s no point in paying your staff their full wage only for the business to not survive through this time otherwise there will be no workplace to come back to when this is all done.
Likewise, you want to be empathetic to your staff’s circumstances and the reputational damage to your business by not having these honest conversations could have lasting effects further to the current issues.
For all small businesses that were employing staff as of 12 March 2020, the Australian government is providing incentives with minimum and maximum benefits for the March 2020 quarter of $10,000 and $50,000 respectively. An additional payment equal to half of these amounts will be made in each of the June and September 2020 quarters for those businesses who remain active during this time. This could be the difference in being able to keep their doors open and staff paid during this time.
If these payments are still not enough to continue employing staff, you may need to look at other options, such as paying out leave entitlements or redundancies, perhaps with agreements to hire again when the business is able to open. This approach will be different for all businesses and I would strongly recommend speaking with your accountant, key advisors and staff to ensure that you are able to find an outcome that can help the business survive this time. Be mindful not to alienate your staff who will also be going through possibly the toughest time of their lives. If you are an employer who is subject to payroll tax, the state governments are also providing temporary relief from monthly obligations so this is another important cost-saving measure which could make the difference
Can you tell us a bit more about the government stimulus packages for businesses with staff and what that means?
As touched upon, the Australian government is providing an incentive to businesses with turnovers of less than $50m that employ staff.
The incentive will be equal to 100% of their PAYG withholding amounts for the March 2020 quarter, up to a maximum amount of $50,000 with an additional payment in each of the June and September 2020 quarters for half of this amount. In total, eligible businesses will receive up to $100,000 in government support throughout this time and all eligible businesses will receive at least $20,000 across these payments, even where their withholding is less than this amount.
The incentives will be included as credits on their activity statements lodged for these periods to reduce any other amounts payable however if the credits result in an overall refund, the ATO will issue these as a cash payment to the business bank account within 14 days of the lodgement due dates, provided the BAS is lodged by this date.
It’s really important to mention that as part of the legislation, the ATO has introduced some integrity measures which state that “the payment will not be available if the entity (or its associate or agent) has engaged in a scheme for the sole or dominant purpose of seeking to make the entity entitled to the payment or increase the entitlement to the payment”. This means, if you are not already paying yourself a wage or equivalent, you should be very careful when considering if this incentive covers your business and you shouldn’t be increasing your wage in order to receive more from this incentive. I would again recommend speaking to a professional and seeking their advice on your eligibility for these payments.
There are also incentives for business that employ apprentices or trainees and these businesses can apply for a wage subsidy of 50% of the wage costs for these staff, up to $7,000 per quarter, per employee, for the period 1 January to 30 September 2020. Applications can be made through an Australian Apprenticeship Support Network provider.
There have also been reports over the last few days that the government is currently discussing the potential for a wage subsidy similar to that seen in the UK, where up to 80% of an employee’s wage will be covered by the government and the idea is that this would be done through their employer to ease the burden on Centrelink’s system. Obviously at this stage, until any announcements are made here, this isn’t an option we’re thinking about right now.
Are there any options for sole traders?
There are options for sole traders. Unfortunately, they can’t access the above incentives unless they are actually employing other staff as part of their business however for most sole traders, the main incentive will be easier and quicker access to the Jobseeker payment and Coronavirus supplement for up to 6 months, which equates to around $1,100 per fortnight in payments. For those sole traders with existing business debts, they may also be eligible for a 6 month “repayment holiday” to help with cashflow, and can potentially access the Government-backed small business lending for new loans up to an amount of $250,000. Of course, they will need to meet the lender’s criteria for any new loans so I would advise anyone in this position to speak with their business banker or broker directly for any advice around eligibility for these products
Anything else you want to add?
Everyone is going to go through tough times in the coming months, and many small businesses will find it difficult to survive.
Small business owners should be facing the music here as soon as they can and should not bury their heads in the sand. There are solutions out there that are being backed by the government however all small business owners should be doing their own reviews now in order to be prepared for the worst when and if it happens.
Due to the fact that these current circumstances aren’t limited to a select industry or business type, there will be a widespread of businesses looking to access these incentives. The result will likely be a massive strain on an already overworked system so business owners should be on the front foot here and should be taking the time to speak with their advisors in the coming