Here at Think Accountants we deliver business strategies and solutions outside the square
The coronavirus has been labelled the biggest global crisis for three generations. The economy came down 50 floors in the ‘elevator’ and it will be much slower and harder going back up via the staircase.
The pandemic didn’t discriminate with both big and small businesses going into hibernation and with so many business owners in survival mode, cash flow is understandably the number one priority. It is the oxygen that keeps businesses alive and for those forced into hibernation and unable to trade, the Government Stimulus Packages have provided a temporary lifeline. Some businesses have been able to pivot and find new ways to generate revenue, however, the shutdown has created a cash flow crisis for most business owners.
American business magnate, investor, and philanthropist, Warren Buffet said, “Only when the tide goes out do you discover who’s been swimming naked.” In boom times, flawed business models and poor business practices go unnoticed. When the economy is booming, we tend not to worry about our level of debt or expenditure on non-essential items. We don’t think we need a safety net because it’s all blue skies ahead.
Enter COVID-19, the pandemic that changed the way we live, work and play. Businesses, big and small, have been impacted and our economy may never be the same. The tide has gone out which has exposed a lot of businesses and sadly, a lot of them won’t survive this crisis. Some analysts predict an avalanche of business collapses and unemployment of more than 10%.
Economic downturns always produce change and some of it will be for the better. We might find workplaces more flexible with staff working remotely from home which will reduce travel time and costs. This might prompt business owners to reconsider the amount of office space they need which could significantly reduce their rent and overheads. Businesses will shed some fat and unnecessary costs. IT systems and staff resources will be under the microscope.
While revenues have been diminished or extinguished, some expenses won’t stop. Proactive business owners have been able to negotiate a rent reduction or rent-free period; however, you may have to fund IT equipment for your staff who are now working remotely. Expenses like insurance and rates don’t stop and it is imperative that you have a clear understanding of your future cash flow. To help your business survive and prepare for the period of regrowth we have put together this list of items to consider:-
The main reason business owners usually prepare a cash flow forecast is to raise finance, however, right now it needs to identify the timing of potential cash shortages.
Typically, your forecast should project cash flow for the next 12 months but right now, the next 3 to 6 months is essential. Keep updating it at least every month as you get more information and certainty around revenue and costs.
Whenever you prepare a cash flow budget you have to make a number of assumptions based on research, available data plus known facts such as fixed costs like your rent and loan repayments. The economic uncertainty makes it particularly hard to project your revenue, but you do need to use your best estimates. For some businesses, with interrupted revenue, calculating your Government entitlements is a priority. Don’t forget to include your tax payments (or refunds) and your cash flow forecast should provide you with your likely cash position at the end of each month.
The idea is to identify the likely cash shortages and solve them before they become critical.
Up to date, accurate financial records allow us to work together to make informed business decisions. Start by preparing interim financial statements so you know where you stand for this financial year. What is your likely tax position for the year ended June 30, 2020? Can you vary your PAYG instalments? What entitlements do you have to Government incentives like the cash boost, JobKeeper and State Government grants?
Your numbers tell you where you have been so you can make decisions to improve your results going forward. Compare your sales in 2020 against the same week and month in 2019. Breakdown your sales by product so you know what your best-selling items are. Know the profit margin on each product so you can identify your most profitable items.
It’s also important that you have a snapshot of key financial numbers including your accounts receivable (debtors), accounts payable (creditors) and current bank balances.
An obvious strategy is to reduce your overheads, which could mean renegotiating your commercial rent. Landlords will generally want to maintain relationships with long-term tenants and the Government introduced a mandatory code of conduct for commercial tenants affected by the coronavirus. Revisit payment terms with your suppliers and you might want to check in with them regarding their pricing policies post-pandemic. Of course, make sure they are still in business and can continue to supply you. You might find it’s a good time to explore new suppliers who might be able to provide the same product or production inputs at cheaper prices. Now is the time to explore any loan deferrals on offer from the banks.
Go through your profit and loss statement, line by line to identify any expenses that could be shaved or eliminated. Do you need the same amount of stock or warehousing? Do you need to maintain the same hours or number of staff? Could you postpone some expenditure? With cash flow uncertainty, it’s obviously appropriate to defer any capital expenditure despite the instant asset write off concession.
COVID-19 arrived with little or no warning but it’s time to plan for the post-pandemic period. Do a SWOT analysis to analyse your business’ strengths, weaknesses, opportunities, and threats. Think about what you could be doing better and what resources you need going forward. There might be opportunities in the ‘new world’ because some of your competitors probably won’t survive this upheaval. You might be sitting on new products or processes and it could be time to hatch that plan you have been sitting on. Look at how quickly businesses embraced working remotely after hesitating for years.
Maybe it’s time to pivot, expand or reduce your product offering. Have you been too dependent on one major customer? Should you expand your home delivery services? Is it time to review your suppliers? Keep asking questions because how you’ve managed the crisis might provide clues on how you should operate in the future.
Staff – despite the JobKeeper scheme there will be lots of redundancies and possibly double digit unemployment. When the lockdowns finish, it won’t be business as usual and it will take time to crank up the economy. It’s a big engine and it will be a slow burn to restore economic confidence. As a result, you might get access to people with a wealth of knowledge and experience in your industry. Some of them may have worked for your competitors which could give you a competitive advantage. Remember, your current staff, have also been affected and they are a great resource to help you identify potential improvements in the business.
Technology – has played a key role in businesses adapting to the changing landscape. With so many people working from home it has forced the use of technology to conduct meetings and access files remotely. While necessity has forced the change, there could be other software and technology available that could help you create even more efficiencies. Technology has impacted the way professional service firms like accountants, solicitors, architects, engineers, and doctors deliver their services. Who would have thought we would see GPs sitting at home providing virtual patient consultations?
In recessionary times your marketing could be the difference between boom, doom and gloom. It is a stressful time and it’s easy to get distracted by financial matters not to mention staffing issues. You need to stay top of mind with your existing customers so it’s essential that you reach out to them with a newsletter or special offer. Remember, most people tend to reduce their spending at this time so targeting your existing customers makes sense. They know and trust you. The obvious question is, is your client database up to date so you can send emails? If not, fix it!
Self isolation has people glued to their phones and the internet. It has changed when, where and how your customers and prospects are engaging with your content. Online activity and sales have gone through the roof in this period and we have seen plenty of businesses successfully pivot and shift their entire focus online. The pandemic reinforces the importance of having an online infrastructure for your business.
If your website is outdated and really reflects your business 3 or 5 years ago, it’s an anchor weighing down your business. It could be time for a makeover or possibly a new website. Is your e-commerce section on your website up to scratch? Is it time to review your product descriptions, add calls to action, produce some videos and write some blog posts? Is your social media strategy in need of an overhaul? Look at your competitor’s websites and cherry pick the good ideas (but ever copy their content). You’ll probably find plenty of them are simply electronic brochures that list the who, what and where of the business. Think about what consumers will want in the post pandemic period and tailor your content accordingly. Your content should highlight your expertise and you want it to appeal to your ideal type of customer or client.
Make sure you have a call to action on every single page and include social proof of how you solved other customer’s problems. Think about producing a lead magnet with valuable information you can offer prospects in exchange for their email address so you build a database of contacts you can market to in the future. Email is the beating heart of most marketing campaigns and make sure you are communicating with your customers to let them know you are open for business (even if your shopfront is closed).
In summary, it’s not easy to focus beyond the current crisis. This is a life changing event and we have never seen anything of this magnitude in our lifetimes. No person or business is off limits. It’s certainly challenging on a number of fronts, but the successful businesses will make it through this crisis because they are looking to the future.
Basic survival instincts will make you focus on building cash reserves, however, revival is all about preparing for the new ‘normal’.
It’s been an extraordinary end to the 2020 financial year with many businesses being forced into hibernation due to COVID-19. The number one priority for most business owners right now is survival and cash flow is critical.
As such, tax planning has never been more important and as your accountants, we believe our client brief includes helping you minimise your tax liability within the framework of the Australian taxation system. With June 30 fast approaching you need to make some key tax planning decisions now and we recommend you prepare a preliminary calculation of your taxable income for the year ending June 30, 2020. The purpose is to identify if you have a tax problem and the size of your likely tax debt.
The following list of tax planning opportunities is certainly not exhaustive and depending on your circumstances (including your turnover and whether you are on a cash or accruals method of accounting), terms and conditions may apply to some of these tactics. If you would like to discuss your tax planning options we urge you to contact us today and most importantly, don’t leave it until the last minute as some of these strategies require some time to implement.
One effective strategy is to delay deriving your income until after June 30, 2020 by:
a) Delaying the Timing of the Derivation of Income until after June 30.b) Timing the Raising of Invoices for Incomplete Work (Businesses).
Where this strategy will not adversely affect your cash flow, consideration should be given to deferring the recognition of income until after 30 June 2020. Please note, not banking amounts received before June 30 until after June 30 does not qualify because the income is deemed to have been earned when the money is received or the goods or services are provided (depending on whether you are on a cash or accruals basis of accounting).
Prepayment of Expenses – In some circumstances, Small Business Entities (SBE) and individuals who derive passive type income (such as rental income and dividends) should consider pre-paying expenses prior to 30 June 2020. A tax deduction can be brought forward into this financial year for expenses like:
Businesses should also consider:
Here are some key points to consider:
We encourage you to schedule a meeting as soon as possible to assess your options and the steps you need to take well before the 30th June 2020. Make an appointment with the Think Accountants team here.
The COVID-19 pandemic arrived with little or no warning and most Australian businesses have been put to sleep on the back of government regulations and instructions. It’s a whole new world with tens of thousands of businesses, both big and small, effectively in hibernation.
The government stimulus payments including cash grants and wage subsidies have given businesses and their employees a lifeline, however, it’s clear that some businesses won’t come out the other side of this pandemic. It certainly won’t be ‘business as usual’ for the foreseeable future, if at all. Understandably, there’s plenty of anxious business owners looking to adapt to this evolving crisis and find new ways to function.
Pivoting is something business owners normally do when they sense the business needs a change of direction. It could be strategic to counter a new competitor, a shift in consumer demand or help the business recover from a testing period that threatened to make the original business model unsustainable.
With the onset of COVID-19, restaurants were quick to pivot. Their dining rooms were closed so many restaurants turned their attention to offering fresh takeaway dinner options. Some creative venues put together a selection of frozen meals for 7 and 14 day isolation packs. As such, some staff have been retained and their cash registers are still ticking over. The value of their average order may well be significantly down because there’s no sale of entrées, drinks or desserts, however, it may well be the key to their survival. Home delivery is an obvious option given the social distancing measures.
The question is, could your business benefit from pivoting in the current environment? Basically, your business exists to solve your client and customer problems. The problems haven’t gone away so can you find a new way to deliver the solution without a massive outlay or risk?
You might say, easier said than done but we have seen lots of businesses adapt in the last few months with some innovative ideas. They have changed direction to keep their revenue ticking over. We have seen drive through coffee shops and florists pop up. We have seen businesses modify their production to address the shortage in medical and hygiene supplies. For example, wineries and perfume businesses are using their equipment to produce hand sanitiser. Textile businesses that produce items like scarves and chef’s aprons are manufacturing face masks. Classes for Pilates, cooking, dancing, yoga and fitness have moved online. Gyms are renting out their barbells and spin bikes. As they say, necessity is the mother of invention.
You may have to pivot or just adapt to keep your boat afloat. For professional service providers like accountants, solicitors and architects the COVID-19 pandemic has forced them to change their modus operandi. Social distancing mandates and self-isolation rules have taken face-to-face client meetings off the agenda, so they are conducting client meetings via video conferencing tools like Skype or Zoom. Their staff are working remotely but they are open for business.
Retailers are very vulnerable and shopping centres have become ‘ghost towns’. At the same time, internet usage has spiked with people in home quarantine spending more time shopping online. It’s vital that retail businesses have an e-commerce option on their website and maybe this is the perfect time to put your website under the microscope. Your shopfront doors might be closed but your online store never closes. It could be time to give your website a makeover or complete overhaul.
Of course, if you’re going to pivot and make changes to your products or services you need to
communicate them to your customers. Notify them that you’re still open for business, have an online ordering option plus a home delivery service. Use the phone, social media, your website, email, SMS and video conferencing to get the message out to your customer database.
As small business owners, you must expect the unexpected. In the last 20 years business owners have had to adapt to a new (GST) tax system, the internet, websites, social media, mobile phones and a massive shift in consumer behaviour to online sales. Having said, we’ve never seen anything like the COVID-19 pandemic that has sent a huge number of businesses into hibernation and frozen the livelihoods of hundreds of thousands of business owners. Pivoting may not be an option for everyone, but it may well present opportunities that could help you emerge from this extraordinary situation stronger than ever.
Prime Minister Scott Morrison announced a package of relief benefits for small One of the long-term impacts of the coronavirus may be a fundamental change to how businesses operate with new research suggesting that up to fifty per cent of the workforce expect to continue to work remotely after the virus is contained.
Research firm Gartner said that 41% of employees are likely to work remotely at least some of the time – 30% prior to the pandemic. As an employer, this can be a benefit with a past survey of 5000 workers finding that remote workers put in 48% discretionary effort (above and beyond minimum requirements) over 35% for those that never work remotely (but they are more likely to switch jobs)
If you are working from home, you may be able to claim a deduction for some of the expenses for your ‘office’ area.
There are two parts to this, those employees working from home and businesses where their principal place of business is their home – effectively running their business from home.
To claim a deduction, you must have spent the money (not been reimbursed by your employer), the expense must directly relate to your employment and you must keep a record to prove it. If you receive an allowance from your employer instead of a reimbursement you must include the allowance as income on your tax return but you can still claim the deduction.
The ATO has acknowledged that many taxpayers may be working from home at this time and that tracking home office expenses may be a challenge. As a result they are accepting a temporary simplified method of calculating additional running expenses from 1st March 2020 until (at least) 30th June 2020. Expenses not claimable under COVID-19 provision include occupancy expenses such as mortgage interest, rent or rates nor the cost of general household items such as tea, coffee, milk which your employer would otherwise provide.
You can claim a deduction of 80 cents for each hour you work from home due to COVID-19 as long as you are:
*Working from home to fulfill your main duties, not just occasionally checking emails or taking calls
*Incurring additional deductible running expenses as a result of working from home:-
By using the shortcut method you cannot claim further for the expenses listed above and you must keep a record (timesheet, diary notes or rosters) of the number of hours worked at home as a result of COVID-19. To claim the shortcut method on your tax return – include the note ‘COVID-hourly rate’.
You can elect the fixed rate method where you claim all of these:
This is where your home is also your principal place of business (e.g. a tradesman with their workshop at home or small business with their main office in their home). If only some of your business is conducted from home, refer to the Working from Home section above.
Your claim is the actual work-related portion of all your running expenses, calculated on a reasonable basis. More information on claiming home office expenses is available on the ATO website.
More information about Running Your Business from Home and claiming deductions is available on the ATO website
For those individuals facing significant financial adversity due to the Coronavirus, the Government is allowing them to access $10,000 of their superannuation before June 30, 2020 and a further $10,000 from July 1, 2020 and September 24, 2020. Amounts withdrawn do not need to be included in tax returns.
The primary purpose of superannuation is to save for retirement and any withdrawals will impact on your future balance. Having said that, given the extraordinary current circumstances, making a withdrawal might be essential.
To be eligible for any early release of amounts from superannuation, Australian (and New Zealand) permanent residents must:-
(Note that extra criteria applies for all classes of temporary visa holders).
Application is through the myGov website directly to the ATO and will require you to certify that you meet the eligibility criteria. After processing the ATO issues you with a determination and sends a copy to your superannuation fund so that they can release the money to you without having to apply separately. Self managed super funds have separate arrangements.
While withdrawing funds out of your superannuation fund is not ideal, it is a one-off opportunity to access funds you would not normally be able to access so it is something that should be considered.
IMPORTANT DISCLAIMER: This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances. While the firm believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.
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