How to take advantage of government grants in economic downturn

New research is showing that despite being in business for more than five years, established companies are not immune to the economic carnage that is about to hit Australia.

As the country falls into recession, the survey by money.com.au does not cement the common belief that business financial security grows in time, however, they are more likely to have the funds to exit comfortably or recreate their business model, given that more than half do not experience cash flow problems and at least 20 per cent turn over significant profit.

“The one advantage established businesses have over young ones is time,” says licensed financial advisor and money.com.au spokesperson, Helen Baker.

“As they have been around for some years, they have developed long-standing relationships with clients or customers, and better understand their product or service. They are also in a better position to know how loyal customers are to them―which helps them make forecasts―and understand how they sit in relation to their competitors. In turn, this helps a business better manage cash flow.

“With Australia having teetered on a recession the last few years, some established businesses got their finances in order early on, so they have had more time to create a buffer. Maintaining positive cash flow and having a flexible balance sheet can help businesses respond quickly during a downturn.”

Sixty-one per cent of established business owners whose businesses have been in operation for at least five years say they are at a stage where they are paying themselves comfortably. This is just slightly better than the 56 per cent of owners of businesses younger than five years old who say the same.

Money.com.au also found that established and young businesses are on an even playing field when it comes to their ability to project profits: 58 per cent of established businesses and 49 per cent of young businesses can forecast their profits over the next 12 months with reasonable accuracy.

The survey also reveals a similar proportion of businesses said they experience significant ups and downs in revenue, with 34 per cent of young businesses and 35 per cent of established businesses saying their revenue differs significantly between months.

“Experiencing financial challenges when running a business is inevitable. Now more than ever, SMEs need ongoing support, particularly those in their first decade of business. The government has introduced new loans―under the RBA’s facility of low-rate loans―to help businesses during the pandemic and online finance platforms such as money.com.au help businesses of all sizes secure loans,” Baker says.

5 government grants and support measures for businesses:

1 Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme. The government is guaranteeing 50 per cent of new unsecured loans of up to $250,000 by eligible lenders to SMEs, sole traders and not-for-profits. Stage one of the scheme is available until 30 September, with phase two commencing 1 October, which will see both secure and unsecured loans become available, up to a maximum of $1 million.

2 Cash flow boost. Not-for-profits and small businesses with a turnover of less than $50 million will receive a tax credit from the government between $20,000 and $100,000 to help retain staff and continue operating. Payments will be equal to 100 per cent of the tax businesses withhold from their employees’ income. If a business isn’t required to withhold tax, they will receive the minimum $20,000.

3 Instant asset write-off scheme. The instant asset write-off allows businesses turning over less than $500 million to immediately deduct capital purchases of up to $150,000 from their tax until 31 December. From 1 January, the scheme will only be available to small businesses with a turnover of less than $10 million, with a $1,000 threshold on assets.

4 JobTrainer skills package. To keep apprentices and trainees in jobs, businesses with less than 199 employers can apply for a wage subsidy of 50 per cent of their eligible employer’s income until 31 March 2021. It is also available for new employers who re-hire apprentices and trainees who were let go during the pandemic.

5 State-specific government business support package. Each state offers a separate package, so business owners are encouraged to find out what is available to them. In Victoria, the government Business Support Package includes cash grants, mental health support for business owners, and relief for tourism operators. Specifically, the Business Support Fund-Expansion provides a one-off $10,000 grant for businesses in metro Melbourne and the Mitchell Shire and $5,000 for businesses in regional local government areas.