Author: Tony Rule, Partner, TAG Financial Services
Business owners are facing a cashflow crisis that will come to a head in the next six months.
Many of the initiatives provided by the Australian Government to help businesses get through the COVID-19 Crisis have unwittingly added to cash flow crisis that will soon generate more headaches for battle-weary business owners. Here are the six issues that are set to hit business cash flow later this year.
Beware the JobKeeper end date
The last JobKeeper payment is scheduled to be paid in mid October for September wages (if it is not cancelled earlier) and those business that have been using these payments to survive will quickly miss the regular reimbursement for wages. Business owners need to make sure they have cash available for the business to continue to operate beyond the shutting down of the Government initiative.
Business loan failure
At the commencement of the Coronavirus, the Government committed $90 billion to banks to be lent to businesses to assist with working capital needs through the expected economic downturn. These loans were to be $250,000 each, repaid over three years (no repayments for the first six months) and part guaranteed by the government to encourage the banks to lend the funds. This initiative has seen very few of these loans actually making it to the businesses that need the funds and for those that have accessed this loan, the interest and principal payments starting after 6 months will add to their cashflow pressure. See our previous blog on the Federal Government’s SME Loan Scheme.
Lease negotiations expire
The commercial lease code of conduct developed by the Federal Government provided a basis for landlords and tenants to negotiate reduced and deferred rental payments during the JobKeeper period. At the end of September, rental payments for many business will return to normal, but business sales and activity may not yet be back to normal. On top of normal rent repayments, deferred rental amounts will add to cash flow pressures in the months to come.
ATO liabilities due
The Australian Taxation Office has allowed businesses and business owners financially effected by the Coronavirus to defer payments to the ATO (including income tax and business activity statements payments) by up to six months. These deferred payments will start to fall due in September adding to cash flow commitments already faced by the businesses.
Christmas cashflow headache
Many businesses close or reduce business operations over the Christmas and New Year period, but still need to make wage and rental payments through this time while income levels drop or cease entirely. In past years this might have been classified as an inconvenience or a characteristic of the business, but this year it may be the straw that breaks the camel’s back. What is your plan going to be for this year?
Plan for recession
Many analysts hoped that the initiatives that had been taken by the Government (including closing borders, JobKeeper, JobSeeker and related programs) would allow businesses to bounce back to pre-COVID levels relatively quickly – the hoped V curve! The Government has recently announced that the country is in a recession (well before official figures will be provided for the second quarter of decline) and economists are not prepared to rule out a depression. Sales for many businesses will be sluggish at best and a speedy revival cannot be expected in most situations.
So what do you need to do right now?
Understanding that there is a looming cashflow crisis, business owners need to make sure that they have a cash flow budget to guide them through the next nine months.
This cashflow budget should map out the likely income and expenditure over the next nine months on a weekly basis and should identify potential breaches of overdraft limits or necessary drawdowns on fighting funds. Plans can then be formulated and actions taken to reduce or eliminate these breaches well in advance of them arriving. Decisive planning and strategic actions now on the back of a good cashflow budget will give businesses the best possible chances of surviving in these uncertain times.
For more information on JobKeeper call us on 03 9886 0800 or email us.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.