Small Business opportunities Post JobKeeper
Unless you have been in a coma or living under a rock for the last 12 plus months, the COVID-19 pandemic has caused a few little mishaps around the business community to say the least. And one of the responses from the government was JobKeeper. JobKeeper was a government support system that allowed, basically, a significant portion of wages to be funded, to keep employers keeping their employees in place. And it was quite generous, probably about 80 to 90% of small businesses qualified for it for the first six months. Then that number started dropping businesses had to renew their eligibility, they were entitled to less money and far less businesses were eligible.
But effective the end of March, the government has said that there is no more money.
So, what does a Post-Jobkeeper world like for small businesses?
What does it mean for the economy and what should small business owners be aware of?
To take a step back, what are some of the things that the government brought in at the outset of the pandemic to help small businesses?
So one was that JobKeeper subsidy, another was cash boost, where basically, if you are employing people, the government would give you between 20 and $100,000 per employer to help pay wages depending on the size of your business. So initially, they were the two big wins for small business owners. And for many business owners, they were a win. Some business owners have never been better off because they managed to escape, largely unaffected by COVID, but was still benefiting from some of these subsidies and government assistance.
Trading Insolvent Exemption
For business that were reliant on these measures just to get by, the government also provided a temporary loosening of the rules around insolvent trading. This allowed struggling businesses and their Directors a temporary reprieve from being seen as trading insolvently and avoiding personal liability. That protection finished up 31 December and is something that small business owners need to be aware of. In my opinion this measure has little impact on how business owners behaved mainly because they were not insolvent whilst they were getting all this free government money.
Relaxing of Debt Recovery
The other sort of policy change that they made was virtually turned off all debt recovery and penalties. And I just know my business in public practice pre-pandemic, there would always be correspondence come across the desk or phone calls from the tax office chasing up people that had not lodged or not made payment and getting quite active on the recovery front. So around April last year, ATO moved about 5,000 staff out of debt recovery and reassigned them through to basically education and JobKeeper eligibility and cash boost eligibility to help small businesses access and administer those programs. That debt relief or not chasing debt, and not imposing penalties was a big win for small businesses, but that is not going to last forever.
What impact did relief measure have on economy and small business?
For one, I would probably say that it has had a real impact on overall business confidence. When the pandemic first started out, everyone was absolutely scared stiff, because there was so much uncertainty. The main benefit of all those programs was it gave people certainty, the confidence to go on. As JobKeeper was announced, everyone took a deep breath. And they could see a path forward to be able to keep people employed, even though we are going to have a lockdown. It also meant that there were significant numbers of businesses, perhaps who were inefficient and not productive, but it kept them alive.
There are several businesses, some people call them zombie businesses, that have got a significant amount of debt that they have just kept up and running until 31 March, because they have been on this sort of free money, subsidized wages, gravy train, which has artificially kept them open for business. Off the back of that we probably would have expected a major increase in small business liquidations and insolvency matters. In fact, the numbers of actual insolvencies have halved.
Another area that was impacted by the measure was instant write-off for assets. If you do not know much about this measure, in the past there was a threshold where above which you would have to depreciate items. Now, basically, it is instant write for asset purchased for small business which means you can really reduce your tax. Whereas in the past, you might have had depreciation over, say, five or 10 years of the life of the asset, now you are going to get an instant write-off for almost all your assets that would qualify. So that is really changed some behaviors and it is caused an actual spike for planning equipment purchases.
(Which is the question I am getting asked a lot.)
ATO Cracking the Whip
According to a conference I went to recently, a $53 billion book of debt that is growing quickly because a lot of their payments have not been forthcoming because they have not been chasing it. So ATO are really going to step up on their recovery mechanisms and I think small businesses should prepare for that. Insolvencies, they will go up. Commercial debt and other supply payments will now also need to be repaid. Many people might have been on a sort of a debt-free holiday or a, sorry, debt payment holiday, I should say, on making payments, including for things like your commercial premises or your equipment finance. They are now going to need to be repaid.
Small Business Owners need a Plan.
As we move into a post JobKeeper world, businesses need to be aware that the leniency around some of these people or some of these organizations that have been very generous around not chasing money, that is not going to last forever. Step one and probably the most important thing for many businesses that have a tax debt is to not ignore the ATO correspondence. So those 5,000 staff that are now going to be back in the collection side of the business, they are going to be cracking the whip. What I think people should be inclined to do is be on the front foot and perhaps reach out to the ATO to suggest a payment plan If they do have any ATO debt, rather than wait for an ATO plan to be imposed on them. It is always better to be driving that conversation rather than be at the mercy of the debt collectors.
Know your Financial Position.
There is absolutely no downside in knowing your financial position. Getting your numbers up to date enables you to have a clear understanding of how you are making money. From that, you can then make informed decisions about what to do.
Off the back of that, I would highly recommend part of that process is getting your lodgments done. Even if you cannot pay, do not sit on a lodge. That is the worst thing you can do. They will find out eventually anyway. You are better off lodging on time and if you are lodging on time, there is a lot less they can chase you for.
Check Supplier Terms
The other thing that I think we really should look at is supplier terms, lock these in now. If you have got an arrangement with your supplier that is perhaps overdue or not documented, because they have been holding off – they are going to start chasing now. I would be getting on the front foot with your suppliers. If you do have an account with them and negotiate a payment arrangement – get it in writing which stops them going legal on you down the track and causing you grief.
Seek Funding If You need it
As mentioned earlier, there be a spike in liquidations. To avoid this, you will need to get on top of you cashflow quickly. In addition to identifying your budget and your cashflow needs, I would suggest identifying potential sources of finance. if you are going to use some things like funding... Banks are ridiculously busy now, they are taking about four times longer than they typically do.
Alternate sources of funding such as debtor finance, trade finance, inventory and stock finance, those sorts of things to help with the working capital of your business can be quite expensive, but it can also help you grow your business and maintain your business. Please do not use these products as a short-term solution such meeting weekly payroll obligations.
Where are the Post-JobKeeper opportunities?
In a booming economy, pretty much any business will do well. In a sort of a harsher economy, those ones that were weak will die off or they will be weeded out. I think COVID 19, or the pandemic will be, this will be like the GFC on steroids, because what we are seeing now is significantly bigger than anything we experienced in the pandemic.
I have identified a couple of opportunities that small business owners should keep an eye out for in a Post-JobKeeper world.
There has never been a better time to sell secondhand equipment. Limits to supply from overseas, changes in those depreciation policy and historically low interest rates are driving demand. Now, this is great if you have got some machinery or equipment now is not a bad time to sell.
Keep an Eye out for your Competitors.
Not all businesses are going to make it. Some of them will be your competitors. They might opportunities to pick up some of their clients, equipment, or staff. There may even be the opportunity to purchase their business. To take advantage of any opportunity like this your will need to be prepared. This can only happen you know your own financial position. You have got to be ready to pounce. So again, as I mentioned earlier, up-to-date financials and up-to-date lodgments.
Getting your Financials in order
The best thing you can do for your business in a post-jobkeeper world is to get into see your Accountant. Get your numbers up to date and pick your Accountants brain. Accountants have seen it all through this pandemic - their successes and the failures and I can guarantee that, just like me, your Accountant will have the answers that help guide you out of a tough situation or show you an opportunity.
To speak with one of our Business Advisory experts about getting your financials in order call us on 0243 533 889