We have already seen the demise of dozens of long established newspapers and retail outlets as the Purge hits the most vulnerable businesses. This shows that the Purge has no respect for tradition.
Despite a wide-held perception that businesses have a better chance of survival after the five-year mark, new research indicates that established businesses will not be insulated from the coming economic carnage.
However, they are more likely to have the funds to exit comfortably or re-create 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 findings come from a survey of an independent panel of 261 Australian business owners commissioned by Money.com.au, an online financial information platform for businesses and consumers.
The survey did not cement the common belief that business financial security grows with time. In the survey, 61% of established business owners whose businesses have been in operation for at least five years said they are at a stage where they are paying themselves comfortably.
This is just slightly better than the 56% of owners of businesses younger than five-years-old who said 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% of established businesses and 49% 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 experienced significant ups and downs in revenue, with 34% of young businesses and 35% of established businesses saying their revenue differed significantly between months.
While the overall survey indicates that all businesses – regardless of age – are in the same vulnerable financial position, there is a silver lining for established businesses.
More than half do not experience cash flow problems – indicating that they may have a good buffer if they decide to fund their business with their savings. In contrast, two-thirds of young businesses admit they experience cash flow issues.
Fourteen per cent say the issue is serious.
A higher proportion of established businesses also turn over higher profits: 20% make more than 30% profit on revenue, compared with half the amount of young businesses who make the same level of profit.
Licensed financial advisor and Money.com.au spokesperson Helen Baker said the one advantage established businesses had over young ones was time. “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,” she said.
“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.
“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.
“I encourage business owners to research and review what schemes can help them get ahead. If they are in the three-to-five-year stage of their business – normally when expansion commences – and are feeling reasonably confident, the grants can help them grow. For others, financial assistance could keep them afloat,” she said.
Business grants available
Money.com.au highlights five Government grants and support measures for businesses:
1. Coronavirus Small and Medium Enterprises Guarantee Scheme. The Government is guaranteeing 50% 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 September 30, with phase two commencing October 1 – which will see both secure and unsecured loans become available, up to a maximum of $1m.
2. Cash flow boost. Not-for-profits and small businesses with a turnover of less than $50m 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% 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 $500m million to immediately deduct capital purchases of up to $150,000 from their tax until December 31. From January 1, the scheme will only be available to small businesses with a turnover of less than $10m, with a $1000 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% of their eligible employer’s income until March 31. 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 $5000 for businesses in regional local Government areas.
The full survey results, including breakdowns across organisation size, location and years in operation, can be found here: www.money.com.au/financial-security-study
