We currently face the most challenging set of economic circumstances since the Great Depression. The fact that this is caused by a global health emergency heightens the fear, anxiety and stress we are all feeling.
As a business owner we must address these challenges and take the necessary action to give ourselves the best chance of still having a business once the worst of the crisis passes.
Every impacted business should have a Crisis Action Plan which outlines the steps required to mitigate financial loss and economic impact. We provide the following action list in the hope that it will assist in the development of the unique plan for your business.
These are some of the key action points we are advising our clients to take if they are under financial duress. They incorporate accessing some of the stimulus and business assistance measures recently announced by the Federal and State government. A complete list of these measures can be found here and should be read in conjunction with the content of this post.
This list is not an edit, copy, paste solution for every business. The points listed below are not exhaustive nor are they necessarily applicable to every business. They are provided as a reference to some of the more common measures that businesses can consider.
We hope that it helps but should you require more detail or help determining the most suitable approach for your business then don’t hesitate to contact the team at Progue. We are here to help in any way we can.
1. Contact your bank and request a 6 month hold on all mortgage, loan and finance repayments.
This applies equally to business and personal debt. All banks have been working with the Federal Government to provide assistance to impacted businesses and households and our experience, thus far, is that they have been very accommodating when assistance has been requested.
2. Contact your landlord and request a rent reduction, deferral or waiver
Most landlords understand the situation facing small business. Most would prefer to assist and retain a tenant rather than face the uncertainty of having vacant office space and trying to find a tenant in a period of recession and economic hardship.
Its important to note that point 1 above applies to landlords impacted by a tenant unable to pay their rent. So a landlord providing a rental reduction, deferral or waiver to a tenant impacted by the crisis is in turn able to obtain assistance from the bank to lessen the impact.
3. Cease payments to the ATO and seek payment deferral or an extended low-interest repayment arrangement
If payment of your tax obligations is going to place your current or future cashflow under significant pressure then the ATO will provide relief in the form of payment deferrals of up to 6 months or a low cost long term repayment arrangement. Our experience with such requests ahs been that the ATO have been very willing to assist. It is important that if you intend to adopt this strategy then communication with the ATO is a requisite.
Whilst this only defers your obligations, rather than reduces them, it may provide you the additional time required to get past the worst of the crisis or make strategic decisions regarding the future of the business.
4. Vary your PAYG Instalment (income tax) to nil on the March 2020 BAS
The ATO has advised that they will permit businesses to vary their PAYGI to nil for the March 2020 BAS and get a refund of any PAYGI already paid in the September 2019 & December 2019 BAS.
This again acts as a deferral rather than reduction in tax obligations as any income tax payable in regard to the FY20 year will be payable on lodgement of the FY20 ITR. But this measure will provide immediate cashflow assistance and more time to determine your strategic direction.
Any fines or penalties that would normally apply for an excessive reduction in PAYGI will be waived by the ATO for FY20.
5. Identify and reduce all non-essential expenditure
Critically review your operating expenditures and identify where immediate cuts can be made. Remember this is about remaining viable when things improve. This is difficult but the reality is some businesses have been required to close their doors (hospitality, gyms, cinemas) and revenue has stopped overnight. Reducing non-essential expenditure when your operating revenues have stopped or reduced significantly will undoubtedly involve a reduction in your head count.
6. Dealing with your employees
This is probably the hardest one for all of us. Our people are our most valuable asset and often we have been a part of their lives, know their families and have relationships with them that extend beyond employer/employee.
There is no easy way to do it but speak to your staff and explain the situation the business faces. In times of uncertainty it will be appreciated. Work together to come up with a solution that balances the needs of the business with those of your staff. If you need to reduce labour costs then there are several options available. This may involve people taking annual leave at a reduced rate (such as 50%) to extend its duration, reducing hours, placing staff on unpaid leave or worst case having to let them go. If unsure in regard to your options, because of a workplace agreement or award, you should speak to a lawyer with experience with employment law.
If your staff have been stood down on unpaid leave (which means you intend to take them back when things improve) or have been terminated they will likely have access to income support from the government including the Coronavirus supplement of $550 per fortnight.
7. Consider whether a loan from the bank under the Coronavirus Guarantee Scheme is right for your business
Whilst the idea of borrowing and going into debt at a time of economic downturn sounds counter-intuitive the Government, RBA and banks are working together to provide unsecured, low cost loan funding under the Coronavirus loan guarantee scheme.
Depending on the strength of your business, the industry you are in and whether you expect to recover quickly once the worst of the crisis passes this type of loan may be appropriate and assist with operational cashflows during the downturn.
Under the scheme impacted business can apply for loan from the bank of up to $250,000 on the following terms :
Whilst this won’t be available until early April most banks are already aware of it and have started planning for it. If you feel it is appropriate for your situation and would be of assistance then you should contact your bank to discuss. There will be a credit assessment process but the Federal Government has provided a temporary exemption to responsible lending obligations to fast track lending to SME’s.
The information contained on this website and in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website and in this article are of a general nature only and are based on our interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.