On 30th March 2020, the Government announced their 3rd stimulus package for businesses. The JobKeeper Allowance will see employers paid $1,500 per fortnight per eligible employee in an attempt for businesses to hold on to employees through this period. But will this allowance help businesses stay afloat?
Bsale chatted to Davie Mach from BOXAS to discuss the effects this latest stimulus package will have on our business community.
What are your perceptions of this stimulus?
This is the most significant package of the three and the one I believe will offer the most benefit. If anything, this should have been the first package rolled out and would have significantly reduced the congestion and impact on Centrelink.
Will this $1500 support to employees help businesses stay afloat?
Most definitely. The two biggest costs are generally rent and labour for business. This will help a lot of businesses in the hardest-hit sectors of tourism, hospitality and entertainment to cover a significant, if not all of their labour costs. This will ease the pressure of the burden of payroll and allow them to focus on other areas of keeping things going until this pandemic subsides.
What will happen to the businesses that are still running at a loss, due to high expenses?
Eventually, you'll run out of cash flow and won't be able to meet your obligations. At this stage, you'll either have to close or sell the business, which is not an ideal time to be doing so with the lack of economic activity.
When is the right time to make the call to close?
Unless you are ordered by the government to close, then I strongly suggest you sit down with your accountant to review your options.
If businesses can't afford to stay afloat, what are their options?
We recommend that they close instead of continuing to burn through their cash flow. If they still have remaining funds when things stabilise, they may be able to reopen to recover. However, this needs to be carefully assessed to figure out if it's a feasible option.
What are strategies to ensure they stay afloat for the long-term?
They'll need to review their cash flow position and see where they can mitigate outflow of cash. This will mean talking to your landlord, suppliers and any other vendors that you have expenses with and trying to defer as much of it as possible. You can also call the ATO to defer all your tax liabilities and potentially see if there are any lending options from banks or authorised lenders who can give you a cash flow boost during this time.
In terms of businesses valuation, is it better if they close and minimise expenses, or remain functioning but run at a loss?
This is very situational and specific to each business' unique situation. As general guidance, we highly recommend that you minimise your expenses to maximise your cash flow whether you are closing or remaining open. However, the devil is in the detail and you'll need to assess this with an accountant to figure out what is the best course of action. There's no one size fits all solution to this.
Lastly David prepared a video on how this package works, you can watch on youtube.
Davie Mach - Director of Box Advisory Services
Davie has over 10 years of experience in advising businesses in management accounting and taxation issues. He leads a passionate team who are dedicated to offering proactive and outstanding service to their clients.
You can find Dave on Linkedin