This year has been one full of firsts – a pandemic shutting down the economy and a government switching on the tap of economic stimulus support, so far, worth $259 billion.
This support has helped many small businesses hit hard by restrictions imposed to limit the spread of COVID-19. It’s helped businesses pay employees; access capital via one-off payments, provided a loan guarantee scheme and allowed instant asset write-offs. Tax payment deferrals and temporary relief from insolvency demands have also been on offer. These, and other areas of support, are all outlined in greater detail in our blog on federal stimulus support.
The key now is how to ensure you stay on a firm financial footing after these benefits wind down. To get more insights on how to do this, we spoke to Kane Munro and Emma Fabbro, both Certified Practicing Accountants (CPAs), who have been busy supporting small businesses through this pandemic. They’ve highlighted some of the key steps small business owners can take, so they don’t encounter a bumpy landing when government stimulus and tax deferrals end. Here’s what they shared:
Get to know your numbers
There has never been a more relevant time to have accurate and up-to-date financial information about your business.
Kane says: “Keep an eagle eye on your balance sheet. Look at your liabilities and when they are going to fall due and start to plan now. Give yourself time to prepare – there’s no guarantee business will snap back to normal as things re-open.”
He adds: “Don’t sugar-coat the situation. Look at your profit and loss report. Is your revenue covering your expenses today? If you’ve been receiving subsidies or relief on rent or other taxes, make sure you take that into account.”
Emma says: “Understand your profitability and cash flow position. This will ensure you have an accurate view of where your business stands today and also if you need to look to approach a lender for short term finance, when accurate financial reports will be necessary.”
Emma also recommends engaging an accountant or bookkeeper who is proactive in ensuring the financial data is kept up to date and switching to cloud-based accounting technology. “Any businesses who hasn’t should do this ASAP as it can make keeping your finances up to date so much easier.”
Keep your business lean
Now is the time to cut back on all but essential spending – take time to dig into what’s going out of your business on a monthly basis. You might be surprised.
Emma says: “Cash has always been king, but especially now. Small businesses need to have cash reserves to enable them to continue to pay business expenses after the stimulus measures stop. Ideally anything from 3 months to 12 months cash reserves will allow businesses to trade at lower income levels whilst still meeting outgoings.
“Check your outgoings. Only spend money on what is absolutely necessary. As a subscription-based society, it’s amazing how many small businesses are being charged monthly subscriptions that they do not know about and no longer need. Review stock levels, can you hold less inventory or lower the cost of goods while still delivering the same service?”
Kane adds: “You might be able to get an instant asset write off but don’t buy something now just for the tax deduction. And when it comes to your income, take out what you need to live – not what you want.”
Set money aside
Kane is particularly concerned about those small businesses who have used the deferral mechanisms in place. That includes the deferral of tax debts, rent or loan repayments. Each of these debts are still going to have to be paid once the deferral ends and “that’s when it’s going to hurt”.
Emma says the best way to ensure that you don’t get into trouble after the stimulus ends is to try to run your business as if you never received these funds or had costs deferred. If it’s possible, put the money aside. Payments are still going to have to be paid once the deferral ends. The slate won’t be wiped clean.
“Make sure you’re staying on top of what you will owe and putting money aside,” Kane says.
Emma adds: “For every eligible business participant who is receiving the full allowance of JobKeeper payments being $1,500 per fortnight, there will be approx. $5,850 owing in taxes based on an average tax rate of 30 per cent. Some businesses may have tax obligations much higher than this rate.”
Looking ahead and looking up
A recent Roy Morgan poll found that business confidence began climbing up halfway through April, with businesses feeling more positive about their ability to bounce back by next year. Making sure your small business is fit to capitalise on the uptick in consumer confidence and business activity that’s forecast to come throughout the year means getting prepared and ensuring you’re not caught off-guard.
It may also be helpful to take a step back and reassess your opportunities – how you can reposition yourself to serve new markets with new services, or how you can offer existing services in new ways.
“Sure, eligibility to JobKeeper was based on meeting a decline in turnover test, however this only needs to be met once. After becoming eligible, a small business owner can continue to trade – subject to government mandates around re-opening – regrowing their business income and sales targets,” adds Emma.
There may yet be no vaccine for COVID-19, but you can protect yourself and your business from getting sick by acting now. Think of it like washing your hands for 20 seconds and keeping a social distance – it’s about not being complacent but taking preventative, thoughtful steps to protect what’s important to you.