Australian businesses need more than macroeconomic stimulus in their hour of need. Businesses are desperate for real cash flow.
Australian small-to-medium businesses are in their hour of need, facing off with the real time fallout of the novel corona-virus disease 2019 (COVID-19) pandemic (with the exception of non-discretionary consumer retailers).
Taylors Strategic Partner, Peter Economos - Chartered Accountant and Managing Director of Blackwattle Business Advisers - shares his insights into the current economic climate for small to medium business and stimulus packages.
Government Stimulus Packages
Federal and State Governments have announced significant stimulus packages aimed 'to protect the economy by maintaining confidence, supporting investment and keeping people in jobs'.
The measures various stimulus packages provide will have a quantifiable benefit to Australian businesses.... in time. And this is great... if they survive.
Right now businesses are scrambling to implement unprecedented COVID-19 business continuity plans covering every unforeseen issue from ensuring safety procedures to overseeing office closures. All this is happening as they grapple with the uncertainty of continuing to trade and seemingly insurmountable head winds of recent events.
It is difficult to argue the measures the government has implemented and the subsequent (over)reaction of the public. It genuinely is for the benefit of public health and safety, but it has meant that overnight the viability and solvency of many businesses is now being tested in the most extreme circumstances. This is the time to utilise the effectiveness of 'safe harbour provision' to allow the company directors to continue to trade without the threat of insolvent trading.
Owners are now making decisions on how to restructure their business and staff to keep the doors open.
Professional service providers have a responsibility to be engaging with their clients in real time to help business owners make these critical decisions.
Simply understanding what the stimulus packages have install for your business is not enough.
The PAYG and Payroll Tax relief (ambiguously coined by government as 'cash flow assistance') will benefit in the middle and long-term, however businesses have to pay staff, suppliers and landlords today, not at the end of the June 2020 quarter.
Making matters worse is that many industries (including hospitality, retail and tourism) will need to meet their short-term liabilities without any meaningful revenue for the month of March (and possibly even longer). There are very few businesses out there that have a spare 3 months of cash reserves sitting around for a rainy day. Small-to-medium business are not afforded with the same options larger businesses have to underpin cash flow in tougher times.
Most businesses will not see any cash flow relief in real terms from the governments' stimulus packages. Just a handy tax credit to offset the taxes they need to pay... if they make it. The government should consider how to provide real time cash flow injections to businesses most in need in its next round of stimulus, not just a ‘cash flow assistance for business’ in name.
Many business owners may be forced to make the decision on who to pay this month. Will it be staff? Will it be the rent? Will it be suppliers? Will it be the ATO? Because it won’t be themselves.
Whatever the decisions, business owners need to engage with their Business Advisers to plan for the weeks and months ahead.
Do You Need Help From An Advisory Professional?
Please contact your chartered accountant or Peter Economos at firstname.lastname@example.org