The Importance of Cashflow Now
There has never been a more important time where the statement “Cash is King” rings true. The level of uncertainty in Australia is still at an all-time high. This week the Federal Government confirmed the on-going severity of the impact the Coronavirus has had and is continuing to have on the economy. How will we perform over the coming 3 to 6 months? How will we go through to the end of FY21? Businesses need to make sure that they are aware of all items that are impacting cash and have a plan for multiple scenarios.
The Federal Government announced this week that it was extending the JobKeeper payment until 28 March 2021. The goal to support the businesses who continue to be significantly impacted by the Coronavirus. There will be two extensions for businesses to review against for eligibility. The first extension is until 3 January 2021. The second extension is from 4 January to 28 March 2021.
Are you eligible for the JobKeeper extension?
Businesses have to see a reduction in turnover of 30% or 50% (depending on their size) and a reduction of 15% for charities. The reduction in turnover test has remained the same as the initial JobKeeper eligibility criteria, however, will be reapplied at the end of September and again at the start of January. Employers will need to ensure they have met the decline in turnover test conditions in both the June and September quarters to be eligible for the December quarter payments. To be eligible for the March quarter the business will need to show a decline in each of the previous three quarters ending on the 31st of December 2020.
Ensure you are projecting your turnover now, how does your forecast look with a conservative, neutral and fair view?
For the businesses that qualify, a new two-tiered payment to employees is being implemented. The amount paid will depend on the average weekly hours worked by the employee in the February 2020 period. One tier for more than 20 hours and one tier for below.
From the 28th of September 2020 until the 3rd of January 2021, the two fortnightly payments will be
$1,200 if the employee worked 20 hours or more per week.
$750 if the employee worked less than 20 hours per week.
Then from the 4th of January 2021 to the 28th of March 2021, the two fortnightly payments will be
$1,000 if the employee worked 20 hours or more per week.
$650 if the employee worked less than 20 hours per week.
Businesses are responsible for correctly classifying their employees. Don’t discount the time and effort it will take to calculate this, get started now.
If you are unsure, don’t assume, contact the ATO and talk through your circumstances. The ATO call centre has been extremely helpful through this time and should be utilised to ensure you have all your questions answered. In addition to JobKeeper the Federal Government will continue to support businesses by extending the SME Guarantee Scheme, this will continue to support business with funding to assist the process of coming out of lock down. There have been a number of changes to the scheme that will open this up to business to invest rather than survive, these will be available from the 1st of October and include:
Increase of the maximum loan size to $1 million.
The maximum loan term increased to five years.
Loans can now be used for a broader range of business purposes, including investment.
The Federal Government will also be continuing the instant asset write off scheme. Businesses that fulfil the criteria will be able to apply an increased instant asset write-off threshold up to $150,000 on a "perasset" basis until 31 December 2020.
The first two initiatives are great, the third be careful. At the end of the day cash is king, so don’t spend money to reduce tax that you don’t necessarily have. Paying tax means you made profit, profit is good.
In addition to the Federal Government, the individual State Governments are also doing a lot at a local level. Ensure you are reviewing your State Government’s website and assessing eligibility for all stimulus. If you are unsure, speak to your external accountant, they will be across this in detail.
Now is the most important time to go back to basics. Every business should be doing the following:
Complete your FY21 Budget and reforecasting monthly.
A 26 week cashflow forecast that is conservative in nature. You need to understand where the business is going forward, not where it is today. Don’t underestimate the importance of this tool. If you need help, ask for professional assistance.
Understand how your business financials compare to the Federal Government stimulus requirements.
Know what your local State Government is doing for you.
Ensure you have a strict policy with your debtors. It’s ok to support your customers, but you also have people to pay. Ensure you are being fair but realistic.
Your payables, you need to ensure you are supporting your suppliers but you shouldn’t be doing it to the detriment of your business. If the decision is to pay for new equipment (asset write off) or pay a supplier, then you should be paying your supplier. We are all in this together, be fair, it will reward you in the long run.
Make sure you have the right amount of inventory on your shelves, you need to be able to service your customers but every widget on those shelves is cash, so manage closely.
Proactive conversations with your lenders, keep them up to date with how you are performing, lenders don’t like surprises so keep them involved.
Cash is king at the moment. You need to be ensuring that you are across it and managing it. Cash is not the responsibility of the accountant, it is the responsibility of the management team, and more specifically, the CEO or owner of the business.