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18 March 2020

The recent outbreak of novel coronavirus (COVID-19) has introduced many new challenges to our communities and businesses.

Below is further practical advice to help emerging, private and mid-market businesses navigate some of the difficulties they may currently be facing.

Key takeaways

  • Caring for your people’s physical and mental wellbeing should be at the core of all actions taken during the COVID-19 outbreak.
  • Cash flows and business plans should be managed through assessing supplier and customer status, optimising cash flows and managing loans and funding needs.
  • The Australian Government has released a number of economic stimulus measures to help the local economy including instant asset write-off and investment incentives, cash flow benefits, support for employers who hire apprentices and tax payment deferral options.
  • Timely and efficient communication plans for all stakeholders should be implemented. 

 

Practical advice on the implications of COVID-19 for private, mid-market and emerging businesses

Caring for and retaining your team

As we navigate these unsettling times, your people’s physical and mental well-being should be at the core of your business considerations. While some difficult times may be ahead of many businesses, decisions should be made with compassion towards the people that may be affected.

It’s important for all businesses to take steps to protect their team’s immediate health. Consider your company’s current travel policies and adjust them to reflect the current expert guidance. We know that this is a fast evolving situation so continue to review these guidelines as the advice changes. Restricting face-to-face meetings and considering if those meetings can be held virtually instead is also recommended.

There may be a need for a back-up plan to protect staff that may be impacted either through illness, or the need to protect vulnerable people in their households. A back-up plan could include contingencies for more automation, remote-working arrangements, or other flexible resourcing capabilities to backfill for personnel constraints. Set expectations with your staff and ask them to be prepared to work more agilely across different roles within their teams. With the use of internal and external technology your company can aid collaboration and the ability to work seamlessly from remote locations.

Managing cash flow and business plans

The careful management of cash flows and business plans is important during this period.

Understanding your supplier and customer positions will help you identify risks and opportunities – a simple phone call can help you gain a clearer forward picture. Adjusting your go-to-market strategy to an online sales channel will help your business to continue reaching a market whose movements may be restricted.

Internally, create two new teams to specifically address your business’ response communications, and supply chain assessment and risk management. Communication of accurate information should be open and consistent between your key stakeholders. Continued conversations with them will allow you to maintain stakeholder confidence and inform customers who may be impacted by your evolving business response. Your supply chain assessment and risk management teams should be focused on identifying upcoming exposure – ask them to review contracts with key customers and suppliers to understand the liability in the event of supply shortages.

There are some immediate actions that can be taken to manage cash flows. In the short term you should follow up on any customer payments due, particularly from larger corporates, and seek extended credit terms with suppliers. Now is the time to revise cash flows, working capital management and inventory forecasts alongside your new supply and demand predictions to help understand how financial stability may be impacted, also consider this impact in relation to, and restrictions in, access to funding.

Have a conversation with your banker to clarify expectations, understand your current loans, including bank covenants, and repayment obligations. They may also be able to help you understand the options if there is a need to raise additional debt or equity.

Accessing existing Government responses

The Australian Government has announced a $17.6b economic response that targets delivering support for business investment, cash flow assistance for employers, stimulus payments to households and assistance for severely affected regions. These funds will be flowed through to individuals and companies in a number of ways.

Instant asset write-off and investment incentive

  • The instant asset write-off threshold has been increased to $150,000 and access has been expanded to include businesses with aggregated annual turnover of less than $500 million. This applies from 12 March 2020 until 30 June 2020.
  • A time restricted 15 month investment incentive to support business investment and economic growth over the short term, by accelerating depreciation deductions. This applies to eligible assets acquired from 12 March 2020 and first used or installed by 30 June 2021. Businesses with a turnover of less than $500 million will be able to deduct 50 percent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset cost.

Cash flow benefits for employers

  • Eligible businesses that withhold tax to the Australian Taxation Office (ATO) on their employees’ salary and wages will receive a payment equal to 50 percent of the amount withheld, up to a maximum payment of $25,000.
  • Eligible businesses that pay salary and wages will receive a minimum payment of $2,000, even if they are not required to withhold tax.
  • The ATO will deliver the payment as a credit to the business upon lodgment of their activity statements. Where this places the business in a refund position, the ATO will deliver the refund within 14 days.
  • Small and medium business entities with aggregated annual turnover under $50 million and that employ workers will be eligible. Eligibility will generally be based on prior year turnover.
  • The payment will be delivered by the ATO as a credit in the activity statement system from 28 April 2020 when Business Activity Statements (BAS) are lodged.
  • Ensure your record keeping is up to date so you can lodge your March 2020 BAS quickly.

Support for apprentice payments

  • If you employ an apprentice or trainee you may be eligible for a wage subsidy of 50 percent of their wage paid from 1 January 2020 to 30 September 2020. You can register for the subsidy from early April 2020.

Tax payment deferral options

  • If your business has been affected by COVID-19, the ATO can work with you to defer some payments and vary instalments you may have due.
  • Businesses on a quarterly GST reporting cycles may elect to change their reporting and payment to monthly, to receive quicker access to GST refunds. You will have to stay on the monthly cycle for 12 months.
  • If you're a quarterly pay as you go (PAYG) instalments payer you can vary your PAYG instalments for the March 2020 quarter. Businesses that vary their PAYG instalment rate or amount can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.
  • If your business has been affected by COVID-19 and you need help to pay your existing and ongoing tax liabilities, you can contact the ATO to discuss entering into a low interest payment plan.

Stimulus payments to households to support growth

  • This measure will provide a one-off $750 payment to social security, veteran and other income support recipients and eligible concession card holders. Around half of those that will benefit are pensioners. Your family members may benefit from this support.

Payroll tax and other opportunities

  • Keep an eye out for other relief that will come from State Governments and Territories including:
    • state tax
    • opportunities to participate in infrastructure opportunities if you are in the construction sector to drive business activity.

Communication plans and stakeholder engagement

It’s important to keep communications during a crisis timely and efficient. Proactively engaging stakeholders and raising awareness of the changing situation will assist your organisation to effectively navigate new and developing challenges. Your messages to key stakeholders should convey ability, humanity and integrity to ensure confidence and understanding regarding your organisations' actions and responses.

Speaking to your banker today about your current debt obligations, the impact of COVID-19 on your cash flows and what additional assistance you may need in the short to medium term can assist in creating longer term plans. Your insurance policies, including coverage and claims processes, are also important to understand. If your company is listed, address your continuous disclosure and financial reporting obligations moving forward.

If your business is part of a distressed sector, including retail, travel and education, consider talking to a corporate restructuring adviser who can assist in a number of ways. They will be able to help prepare an urgent financial assessment focusing on short-term liquidity, work with you to develop available levers to reduce costs and improve cash flow and create a strategy for managing stakeholders and reporting to financiers and major creditors.

The current global pandemic landscape is challenging for us all. During time of such uncertainty naturally our attention turns to our families at home – but our work families – our employees, peers, colleagues and business leaders – may also need assistance during this time.

The Australian Government, banks and other corporates are aware that these times are difficult and that private, mid-market and emerging businesses have specific business needs.

We are seeking to support our clients and business by bringing together all of the available relief options in one place that you can use as guidance. As the situation evolves, we will continue to bring you further updates on how to face these difficult times during the COVID-19 crisis.