With the end of Jobkeeper approaching in March for those businesses still meeting eligibility criteria, and other tax concessions being phased out, business owners need to look beyond March.
The COVID-19 crisis has provided some indirect beneficial outcomes. It has in many ways been a catalyst for businesses to closely examine how they operate, who they transact with, and the efficiency and profitability of their businesses.
There has been a greater focus on planning, strategy, active management of production and sales, marketing & sales, and a re-imagining of business. While cash flow is always key – business resilience will have as much to do with recovering after coronavirus as it has in how businesses manage temporary setbacks.
For businesses that have not, or will not adapt, the end of concessions and cash flow lifelines may be terminal.
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Podcast Episode 30: Beyond JobKeeper – What does your business need to prepare?
Paul Sweeney (00:00):
Hi, it's Paul Sweeney here, Chartered Accountant and Certified Business Advisor. And we're talking about the end of JobKeeper. So we're now in March 2021 and notably the JobKeeper assistance that finishes on the 28th of March, so that's the last week of JobKeeper. So with the end of JobKeeper approaching now, a lot of those businesses that are still meeting the criteria to be eligible for JobKeeper and other tax concessions, those things are going to be phased out, so what do we need to do to prepare ourselves beyond March?
Paul Sweeney (00:29):
Now, if you're not on JobKeeper at the moment, then there's a good chance you've already gone through this exercise of planning what you need to do. So you may already be well-prepared, but there are a few things we're going to consider and talk about here, because coming up to the end of March, it might not just be a case of your business is ready, but what about your suppliers and customers? So we're going to have a look at that now.
Paul Sweeney (00:52):
So if we go back 12 months ago at the beginning of the lockdown and all the COVID trading conditions that we encountered, the Chartered Accountants Australia and New Zealand came up with 10 key business and tax impacts that arose from this coronavirus situation that really affected business conditions. And in fact, Michael Kroger, the Australian tax leader at Chartered Accountants Australia and New Zealand, made a statement that coronavirus is proving a particularly difficult challenge for many Australian businesses, given lingering uncertainty on the duration and extent of the outbreak. Now that lingering uncertainty, that lingering challenge is still there because businesses continue to face challenges. And once the stimulus measures are turned off, those challenges will be there. And in fact, some of them are going to be quite difficult to overcome.
Paul Sweeney (01:40):
For a lot of businesses their cash flow has been depleted over the last 12 months and getting refinance or short-term cash flow funding can be difficult for small and medium businesses, particularly when we have the current environment we have today. So some of your businesses will have your suppliers and your customers also affected. So maybe there's going to be some issues there.
Paul Sweeney (02:04):
So there's a number of specific issues that Chartered Accountants identified back at the beginning of coronavirus trading conditions. And that included things like managing your workforce, how do you manage the downturn? Looking at your supply chain, how are travel restrictions affecting you? How they affect your business. What's your online strategy? How do you deal with compensation receipts? And particularly looking at insurance implications and having to refund to customers, those sorts of things.
Paul Sweeney (02:33):
What are your finance commitments? Can you get short-term and intermediate finance to help you get through that situation? Are you having finance obligations that you're not able to continue to meet? Do you need to vary your tax installments? Because your income is going to be low and your profit is going to be low, therefore your tax is going to be lower. Have you varied those installments? Have you kept up to date with your tax payments? Do you have payment arrangements in place? How are they going to be affected? And did you access any government support? Did you get the cash flow boost, JobKeeper or any of the state incentives such as payroll tax concessions or some of the localized government grants?
Paul Sweeney (03:12):
So the federal government came up with their response to coronavirus and it contained a number of temporary tax measures to support primarily investment in business and just keep businesses afloat, keep businesses employing their staff and keep functioning during this period. Particularly the early period where we had lockdowns nationwide and trading was difficult, making sure that we held onto our workforce kept employing people and they still had money to spend throughout the economy.
Paul Sweeney (03:50):
So there were a number of measures like JobKeeper is probably the most well-known cash flow boost for employees, but we also had increased asset write-offs available and that's been extended with the immediate expensing of assets. And there were also parallel tax concessions and some grants for local community. So I think it's about $267 billion was provided by the federal government indirect support under their recovery plan. And the Australian economy is rebounding pretty strongly. And the state governments have also come to the party with some payroll tax concessions and other access grants for small businesses in particular industries affected like tourism in certain regional areas particularly.
Paul Sweeney (04:36):
Now it has provided some beneficial outcomes for some businesses. Look, a lot of businesses have actually benefited from this situation because it's been a catalyst for businesses to change the way they do things, to closely examine how they operate, who they transact with and how efficient and profitable their business is. And there's been a lot more focus on businesses actually planning, creating strategy, actively managing that strategy. And looking where sales are being made to who are your customers? Who are your markets? How do you supply to them? Where do you get your products from? Your services from? Where are you being supplied from? And just re-engineering how business is done. And cash flow has always been a key to this. Key to businesses remaining resilient is how you manage your cash flow. And the government came to the party by providing a lot of stimulus in the form of cash flow for employers, particularly, but also some indirect incentives as well.
Paul Sweeney (05:40):
So how effective we recovered, it depends on how effective we manage our businesses during this last 12 months, but also how are we going to manage it after JobKeeper finishes? So in the next 12 months as well. So there's a lot of businesses out there that still have not been able to adapt. And the end of the concessions and the cash flow lifelines, that's going to be really critical for them and may even be terminal. Now that that is a concern and we need to be mindful of that in not just who we deal with, but how we plan for our business future.
Paul Sweeney (06:14):
So we had this environment still, where we have a lot of uncertainty about what's going to happen. We don't know how effective the vaccines are going to be. We don't know when the borders are going to reopen. We don't know when supply chains are going to improve. We still have a lot of uncertainty. We also don't know what the government's going to be doing in terms of the tax environment we have working. And whether some of these concessions are going to be extended. But there are aspects of our business we do have control over. And that's what we should be focusing on as well. We have control over how we're running our businesses, where we spend our money, how we target our sales, what our strategy is. So we're still operating in an environment where there's a lot of variables we can't control, but there is much about the way we do our business that we can control and we can make strategic decisions and implement those to create a better business.
Paul Sweeney (07:10):
What we need to avoid when we're in this situation is fear, because fear actually prevents us from acting. Fear prevents us from taking opportunities and capitalizing on them. Fear prevents us from responding the way that we should. And so a lot of those issues that we came across when COVID first came in and we needed all those concessions, a lot of those weren't within our control, but how we dealt with them was to a degree how quickly we responded, how quickly we got advice, how quickly we made changes. But a lot of the things that we've encountered in that period are in our control.
Paul Sweeney (07:53):
But we can increase our understanding, we can increase our control of our business and our environment, by understanding what the new conditions are, what the new environment is, what the new rules are for business. Understanding what environments we're operating in and what our markets are. So when we know those things, we can actually decide with a lot of greater clarity about what directions we're going to take, what strategies we're going to implement, and the actions we're going to take. What resources we need, how are we going to manage our workforce, how we're going to manage our cash flow. We can be more purposeful, more deliberate in our decisions and actions.
Paul Sweeney (08:36):
So we're looking at this new environment, a lot of the focus has been on JobKeeper finishing. But tied in with the JobKeeper end date is a number of other concessions that are going to be phased out or cut off straight away. And some of those concessions are the payroll tax concessions that tied in with JobKeeper. So that'll be coming an end, but you need to check whether you've claimed those exemptions that have been provided by the state governments. How do you claim them correctly? Have you kept up with all the required lodgements to make sure that you're claiming those exemptions and you don't miss out? You need to make sure of that.
Paul Sweeney (09:11):
But also bear in mind that during this period, some of the state governments have actually changed the federal tax rules. So in New South Wales, the rates come down from 5.45% to 4.85%. And that's where the 1st of July 2020 until the end of June 2022. And the payroll tax threshold, where you start to pay to payroll taxes, that's gone up from $1 million to $1.2 million from the 1st of July 2020, which is just gone. So there are some concessions that have come out of this COVID training period, which will actually help your business.
Paul Sweeney (09:45):
I mentioned before that governments are trying to encourage spending and investment, which sort of kick-starts the economy. If you're spending money with enough business, they've got revenue coming in, they can continue to employ. So it's that multiplier effect where if you spend $1, somebody else will spend a dollar and so on and so on. And so you spending $1 may not seem like a lot, but it has an effect of maybe six to $8 being spent in the economy. So the federal government wants us to open our wallets and invest. And so it's in legislative things like the immediate asset write-off where we had the 100% deduction for the cost of eligible depreciating assets for small, medium businesses.
Paul Sweeney (10:30):
Now those new assets must be held already for use under these new immediate expensing rules prior to 30 June 2022. And you do have to be carrying on a business. So there are a few ways we can capitalize on that. A small business with turnover under $5 billion can take advantage of these immediate expensing of asset rules. And if you're a larger business, there's an alternate test where your income... So your income, not your turnover is under $5 billion.
Paul Sweeney (11:08):
So ways that's going to be helpful. So one of the things I mentioned is a lot of businesses have had their cash flow depleted, their stores of cash depleted. So how are they going to invest in those assets? Where are they going to need finance? Now is finance going to be available? That's the next question that we need to answer. But what's the effect of doing this? So if you're a business owner and you get an immediate deduction for buying an asset, and that asset might be a hundred thousand dollars, what's the advantage to you if your profited, apart from [inaudible 00:11:41], I said there's only $50,000. You've now got a $50,000 loss. How does that help you? Well, it helps you that you've got a new asset, which is hopefully going to help you produce more efficiently, better quality, less break downs, easier to manage, less costly to run. So there are advantages, and that should also drive your decision to buy new assets. You should actually think about what's the business case for me buying this asset, not just the tax incentive that I'm getting from it.
Paul Sweeney (12:10):
Now, the tax incentive also comes in here because by creating a loss, normally, we had this situation where a company can only carry forward the loss and apply that against future income. What are the other rules that's coming? It’s this tax loss carryback offset. And what that means is if your company... Now, this is only available for companies that have achieved a loss. So if you've got an income tax liability from having a taxable profit in either the 2019, 2020 or 2021 income years, and then in a following year you make a tax loss, you may be able to claim back some of the tax you've paid on those profitable years.
Paul Sweeney (12:59):
So there's a refundable tax offset up to a maximum amount of the previous tax liabilities that you've paid. Now to be eligible for this you've got to have less than $5 billion in turnover and for most small businesses there's no problem in meeting that criteria. That's in the year of the loss. And given the trading conditions have been less than favorable in the year of the loss your revenue would be expected to be lower. So the last few years that are eligible are 2020, 2021 and 2022. And this loss can be applied or carried back and applied against prior year's income tax liabilities for 2019, 2020 and 2021.
Paul Sweeney (13:45):
Now the offset is limited to how much you've paid and your franking account balance also has an effect on that. And the measure only came in, though, this is a catch, on the 1st of January 2021. So when do you claim it? We said that one of the eligible uses that if you had a loss in 2020, you can apply that against the 2019 profit. But when you claim it is through your tax return in the 2021 and 2022 tax sheets, when you lodge those returns. So you will need to get your 2021 tax return lodge quickly. If you have a loss in 2021, or you had a loss in 2020, and you want to apply... If you want to carry back that loss against 2019 profits and recoup some of that tax you've already paid. So you are going to need to get your tax return in very quickly after the end of June 30, to get access to that cash flow as soon as possible.
Paul Sweeney (14:47):
Now there's some other things that have happened at the same time. So there was some insolvency reforms, particularly during COVID, which sort of prevented people from taking the insolvent action and making claims against creditors for nonpayment. And there's been a lot of reform coming up, trying to simplify costs and red tape helping small business recover. Now, these measures only apply to companies that have liabilities of less than a million dollars. And they're quite detailed whenever we have simple measures, they do tend to get a bit detailed into how they work. And I come in as well. Now they include things like debt restructuring rules, and a simplified liquidation process. And one of the issues we need to be aware of is that your business might not be insolvent or having difficulty, but what about your customers? What about your suppliers? I'm going to come back to this point, but your suppliers and customers affect how your business trades.
Paul Sweeney (15:45):
Couple of other things, they're really in the pipeline is that the Super Guarantee rate, that as an employee, you pay nine and a half percent superannuation on your employees’ wages. That right is legislated to go up to 10% on the 1st of July 2021. And you'll gradually increase to 12% by 1st of July 2027. Now that increase has already been legislated. So unless things change, the rate that you're paying for Super Guarantee for your employees will go up to 10% on the 1st of July 2021. Now we could expect a change to that rule. The federal budget scheduled for 11th of May, may change that, but any deferral will need an amendment to the legislation that will need both parties to work together to get that through.
Paul Sweeney (16:35):
So there are a lot of things to consider in the last 12 months, and we still have got work to do. We still have got work to do, because we're not out of this situation now. There are a lot of things that we had to look at, we had to manage our workforce, we had to manage the downturn, manage our supply chain, deal with different travel and environments. Adapt, modify our online strategy. Look at our finance, our cash flow, look at our tax payments and access to government support that we could.
Paul Sweeney (17:07):
Now, when we started this process, there were a number of things that were critical. So there are a number of things that are critical to coming through this as a successful business and moving beyond COVID to the next period and remaining successful, continuing to be profitable, continuing to grow. And one of the first things you've got to do, the most critical thing is managing cash flow. You've got to manage your cash flow. Now that could be cutting back the number of subscriptions you have in your business, cutting back some of your expenses.
Paul Sweeney (17:38):
A lot of people are working from home, so how do you get out of your rental agreement? Because rent is a big cost for a lot of small businesses. Look at your workforce, who do you actually need? That is a critical thing to consider with JobKeeper being turned off for some businesses that are still dependent on it. They may not be able to afford to continue to keep those employees in place. What's the effect of that on your sales and your cash flow? So we need to consider those things. Can we change our financing? Can we renegotiate to a better finance arrangement where our repayments are lower each month?
Paul Sweeney (18:14):
So there are a lot of things that we can do, and you should be discussing this with your accountant and your business advisor, to make sure that you're on top of this and you manage it proactively. So you should be reviewing your finance. You should be reviewing your plans and what are your spending? What's unnecessary? What can be deferred? Can you ease your spending, going to be matched by a tax incentive? There are lots of things to consider in here, but cash flow management and monitoring are crucial.
Paul Sweeney (18:41):
And communication, we need to keep communicating, not just with our employees, we need to keep communicating with our suppliers and our customers. And the amount of online communication through webinars and Zoom and direct mail and Facebook posts and social media has increased. And a lot more people have moved to an online environment where their interactions with their customers are more online. But you do need to keep communicating with your customers. Let them know what products you've got available. Let them know if there's an issue with supply so you're not creating a bad experience for your customer, so they're still loyal to you.
Paul Sweeney (19:16):
Keep communicating with the Australian Taxation Office and the government. Look, if you've got a payment arrangement in place, you must keep complying with it. If there's an issue, you need to talk to the ATO straight away. If you don't have a payment arrangement in place, if you've got arrears of tax lodgements or payments, you need to speak to the ATO right away. Don't delay that, get on the phone and talk to them now and get something in place. Because on the 1st of April this year, things are going to change. You need to be on top of communications with the ATO, and you should always be communicating regularly with your accountant. And you might also be wise to speak to your business lawyer about this as well.
Paul Sweeney (19:57):
You need to know as well what your current position is. You need to understand your numbers. So you should be keeping your accounting records up to date. You should know whether you're making a profit. You should know what your cash flow is going to be, what sales are coming in, and whether you are at a loss position that you should use against the prior profits like we talked about in this loss carryback. Understand what your business position is, understand what they mean. What do your numbers mean? If you don't know the answer, talk to your accountant and find out. Get them to explain it to you. You need to know what your numbers mean as a business owner.
Paul Sweeney (20:34):
Now planning is always important and it's never too late to plan. It's never too late to create a plan for how you're going to move forward. What do you need to be doing right now? What resources do you need in very simple terms, what are the three things that you need to be focusing on in the next 90 days that are crucial for your business? What's going to help you generate more sales? Or it's going to help you improve your cash flow? What resources do you need? So create a very simple plan. If you need help with that, then talk to your accountant and your advisor because they are experienced and qualified people that can help with that process. They can help you cut through all the confusion, all the mystery and just make it a very simple process for you.
Paul Sweeney (21:17):
So once you've got your plan, the next key thing you've got to do is you've got to implement it. There's no point having a plan, if you don't implement. So you've got to make sure that happens. And this is where accountability helps. Making sure that you actually implement, you act on what you say you're going to do. You've got to get it done. You’ve got to make sure that the plans you make are implemented, because if you don't implement then you're going to be in the same situation or worse three, six, nine months down the track.
Paul Sweeney (21:46):
Make sure that your plans are working, review the results. Make sure that the results you're getting are what you expected, if they're not, you're going to have to adjust your plan and move forward. So it's not just those things that you need to take into account. It's not just the cash flow, it’s not just your profit. You've got to think of the future and put in place a plan to make sure you continue to have good sales, you continue to have good cash flow.
Paul Sweeney (22:13):
And then also you need to make sure your suppliers continue to supply. So who are they? Who are your suppliers? Where are they based? And where do your supplies source their products from? Your supplier might be in Australia, but they might be sourcing their supply of products from China, Thailand, overseas. We've had this situation of multiple business owners having had the supply of their product delayed. And we're talking delays of two, three, six months. Now that makes it very difficult to sell. So a lot of businesses have had to source alternate suppliers from local manufacturers, local businesses, and that's been good. That's been good. They found an alternative supply. They've also helped by investing and spending in a local business, creating more money to the local economy. And that's been great. But where is your supply coming from?
Paul Sweeney (23:08):
There were a lot of products and spare parts that is just simply not available at the moment because although we've got a fairly robust situation here, we've got good COVID control and with vaccinations about to happen, we've got pretty good levels of freedom for business. We can try as close to normal as we can. But in other countries, that's not the case. So production is still limited and restricted. So if your supply is coming from overseas, you need to keep a close eye on that. Be very careful monitoring what's going on in your supply, communicate with your suppliers and find out what's going on. When can you expect delivery? And make sure you've got some alternative strategies in place. You may need to look at alternative suppliers or maybe look at alternative products to sell that you can source locally. Find out what other business owners are doing. And also look at local suppliers.
Paul Sweeney (24:09):
So just like we have issues with suppliers. What about your customers? What about your customers? Because your business is good and your customers will be buying from you, but what about their customers? Do you sell business to business or business to consumer? What about the businesses that you're selling to? What are their businesses? What are their customers like? How are their customers traveling? You need to keep an eye on what is happening with your customers.
Paul Sweeney (24:42):
Do you have a high reliance on a single customer or a small group of customers? If you do, you've got a higher risk. You need to be more aware of this and keep a close eye on what happens to one of those key customers. If one of those keys customers is not able to continue in business it really affects your ability to trade. You've lost a lot of your revenue and your cash flow. So what happens to that situation? If one of your key customers closed down and wasn't able to buy from you, how would your business survive? If you have a high reliance on a single customer, you need to look beyond that and start focusing on acquiring other customers. So you need to have a strategy to do that.
Paul Sweeney (25:23):
If you're selling to consumers, how will they be affected once JobKeeper finishes? A lot of people are still depending on JobKeeper and the related measures for their cash flow. But when that dries up and their cash reserves are gone, will they still be able to spend money?
Paul Sweeney (25:38):
So there's a lot going on. We're not out of the woods yet. We still have a lot to do in terms of planning and managing and growing our businesses. But we should always be working on our businesses. We should always be looking on planning for how we're going to run better, more efficient, more profitable businesses in the future.
Paul Sweeney (25:58):
Yeah, there's a lot that we need to manage going forward. Some of it's out of our control. We don't have control over the tax rules that are going to be put in place. Are they going to change the tax rates? Are they going to change some of the employment rules, is Super Guarantee going to be increased? Our minimum wage is going to be increased. We don't have control over that, but we do have control over a lot of things in our business. And we need to make sure that we've got a plan in place, that we're monitoring what's going on in our business regularly, and we're able to get good advice.
Paul Sweeney (26:33):
So keys, know the rules, know the environment, understand your business, and get help from qualified professionals. So to get beyond the end of JobKeeper and government concessions, you need to have a plan now for how you're going to move forward. Can't be relying on that funding from government. You need to be able to run a profitable business, irrespective of whether you're getting incentives from the government or not, your business needs to be profitable. If your business isn't profitable, it might be time to have that hard decision about whether you continue in business and whether you would be better off seeking employment. But the time is to have a look at your business now and decide how is your business going to survive in the next 12 months and beyond? What plans do you have in place? And how are you going to be profitable going forward?