Covid 19 Stimulus – What happens when it ends?
Right now many businesses are receiving financial support under one of a number of government stimulus packages. These include the Job Keeper package and the PAYG rebate scheme, as well as state-based relief on Payroll tax or state-based grants for some organisations who are below the payroll tax threshold.
The impact this will have on the profitability of a business will vary widely. Some are finding that their revenue is down so significantly that these measures are just enough to keep some staff on board and nothing more. Even with this in place they are still struggling financially. Others are finding that their revenue is down by enough to qualify for these support packages, but once these are applied they are actually reporting a better financial result than they would have done in normal circumstances.
One organisation we work with is showing a full year forecast for 2020 which will be better than budget by more than $100,000. To be clear, there’s absolutely nothing improper about this, they have complied to the letter with the legislation (both in word and in spirit). Essentially their revenue is down by more than 30%, but they are also able to very quickly reduce costs by almost as much – then they are receiving those stimulus amounts.
The question though that this raises – and this will apply to many businesses – is what happens when Job Keeper and the PAYG rebate schemes end? For many businesses their revenue is not going to immediately spring back to previous levels, for the last few months of 2020 and into 2021 they will without doubt be trading at a loss. The client I refer to above will likely see a further decline in revenue in 2021, so they are likely to trade at a loss / cashflow negative for some or all of the 2021 year.
Over time such businesses will establish a new trading position, either generating additional revenue or reducing outgoings, but that will not happen immediately. Until it does the surplus they are recording at the moment will be the difference between survival and failure during the “post Covid 19 period”.
If your business is one that is struggling just to survive right now you’re not alone, I am seeing a number of our clients in a very tough position and I know that where your business sits on this spectrum is more about good fortune than anything else. If there is anything we can do to help, we’re here. If you need help navigating the stimulus packages our team are experts.
If you are in the more fortunate position of seeing a better than expected financial result for the 2020 year, plan now for how this is likely to unfold into the 2021 year. You should:
- Retain as much of that surplus in the business as you can, as a buffer against what 2021 may bring
- Plan for how you can restructure your organisation to best fit what you anticipate 2021 may bring
- If you have both surplus cash and surplus time right now, look at what you can do to enhance your systems or procedures to make it more efficient when restrictions ease
- Prepare a budget and a cashflow forecast for the 2020/21 year: you need to be able to forecast your cashflow from October 2020 until at least June 2021 to be able to make good decisions now.
Once again, if you need help with any of the above please get in touch.
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