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COVID19 – Affects on Small Business

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    The coronavirus or COVID-19 presents a significant threat not only to human health but also to business. For many businesses, likely moves by governments to contain the public health risk may result in a sudden fall in demand for your products or services, labour shortages and supply disruptions.

    As part of a comprehensive risk management strategy, there is a range of actions you should consider taking now to prepare your business for COVID-19, to place it in the best possible position to not only navigate through the crisis but to also be better prepared to take advantage of the recovery. Fundamental to your preparations are keeping up to date with official information on COVID-19 and any directions public health authorities may issue. It is therefore important to follow the website of your local health authority. 

    We understand this year has been difficult for many small businesses, with a number of recent events leading to economic and personal challenges.

    To help your business withstand and recover from the economic impacts of COVID-19 (novel coronavirus), new measures and other assistance options are now in place to support you. We are implementing processes to ensure you have access to these measures as quickly as possible.

    But first, let’s consider some statistics

    Incidence of Adverse Business Impacts

    Businesses reported whether they were adversely impacted by COVID-19 in the previous two weeks and if they anticipated adverse impacts in the coming months.

    Businesses adversely impacted by Coronavirus (COVID-19), current and expected, by employment size, March 2020

    covid19 business impact chart 1

    Approximately half of the Australian businesses (49%) had experienced an adverse impact as a result of COVID-19 during the previous two weeks and 86% of businesses expected to be impacted in future months.

    Businesses adversely impacted by Coronavirus (COVID-19), current and expected, by industry, March 2020

    covid19 industry impact chart

     

    Over three-quarters of businesses in Accommodation & food services (78%) reported that they had experienced adverse business impacts in the previous two weeks and 96% anticipated impacts over the coming months.

    By contrast, businesses in Professional, scientific & technical services (21%), Electricity, gas and water supply (34%) and businesses in Mining (37%) were the least likely to have been adversely impacted by COVID-19 in the previous two weeks.

    Nature of Business Impacts

    Businesses adversely impacted by Coronavirus (COVID-19), current and expected, by type of impact, March 2020

    covid19 business affected by employment size

    A reduction in local demand was the most common impact reported for the previous two weeks (82%) and was also the most common impact expected in the coming months (81%).

    Of impacted businesses, over a third had experienced staff shortages (36%) and 59% expected to experience staff shortages in coming months.

    Data collection

    Data was collected from 1,217 businesses through a telephone-based survey, conducted between 16 and 23 March 2020. These businesses form a sub-sample of those included in the March quarter 2020, Business Indicators Survey.

    When interpreting these results, please note, response rates are significantly lower than typical ABS collections (41%).

    Non-response may be related to whether businesses are adversely impacted by COVID-19. If this were the case there is potential for systematic bias in these estimates that weighting procedures would not correct for. In particular, estimates of the prevalence of adversely impacted businesses may be an underestimate if businesses have typically not responded because they are impacted by COVID-19.

    Please visit the Australian Bureau of Statistics for more details.

    Make sure you are complying with government directives on COVID-19 and your WHS obligations

    You need to do everything you can to protect the health and safety of you, your staff, and your customers. Stay up to date with government directives at Australia.gov.au. Other relevant sites are Safe Work Australia, Department of Health and the Victorian Occupation Health and Safety body.

    Look after yourself

    Take action to protect your own physical and mental health. The My Business Health portal has resources to help. 

    Update Your Financial Statements

    To be able to make the best possible decisions in a difficult environment, you need access to the most up-to-date information on the state of your business finances. Therefore, we recommend you bring your financial statements up to date and keep them up to date.

    List Possible Impacts on Your Business, Estimate the Financial Impact and Develop Mitigation Strategies

    Discuss with your staff, key suppliers and key customers what the likely impact of COVID-19 will be on your business. The impacts on business will likely be most significant in the following area: 

    • Sales – particularly if you have little to no online presence.
    • Staff availability – with people likely to be subject to restrictions on their movement, their ability to work will be curtailed, particularly if there is limited scope for them to work from home. 
    • Supply chain – particularly if you rely on suppliers from badly impacted parts of the world.
    • Finance – particularly if your cash reserves are low.

    If your business is already impacted, start by listing what those impacts are. If you are not impacted yet, you should still be able to make some informed projections. In listing those possible impacts, attempt to quantify what those impacts will have on your business and identify possible strategies to mitigate those impacts. 

    Perform a Financial Health Check on your Business

    Knowledge of the financial health of your business is fundamental to assist you to decide what you can and should do now to place your business in the best possible position to navigate through the crisis. A significant amount of information on the financial health and performance of your business can be gained by analysing your financial statements through financial ratios. 

    Re-Do Your Budgets with New Assumptions

    The assumptions you may have used to produce your budget are most likely no longer relevant because of the crisis. Working with your accountant, take the list of possible impacts of COVID-19 you have developed and re-do your budgets. Include a range of possibilities previously unthinkable scenarios, such as a 50 to 80 per cent decline in sales over three to six months, or a supplier is unable to supply you a key item for six weeks. Carefully consider how each of those scenarios impacts your cash flow. 

    Increase in Online Sales

    Can you change your business model to better operate? For example, providing takeaway or delivery services? Can staff work remotely? Think about what you can do to keep the cash flow coming in. Consider what you can do now to improve your business’s recovery once the crisis is over, such as how you use digital capabilities. 

    Recent experience from markets already impacted by the virus shows that customers are likely to stay home (whether at the instructions of health authorities or by choice), and therefore, purchase more online. To remain viable, many small businesses will need to begin selling online or increase how much they sell online. A key part of preparing for the crisis is investigating different online platforms to see which one is best to sell your products to reduce your reliance on your shop front. You should also review how best to deliver your products to the customer. Your accountant may be able to assist you with these important considerations. Suppliers of services should investigate digital solutions to the delivery of services to reduce the need for face to face contact. Consequently, you may choose to close some of your physical locations.

    eCommerce online business accounting & bookkeeping services

    Talk To Key Suppliers

    Businesses in supply chains need to work together to support each other. Talk to large suppliers and ask about extended payment terms. Also, talk to small business suppliers and see what they may be able to do. Talk to your key suppliers about their ability to deliver reliably during the crisis. Consider not only their ability to produce the inputs you need, but also the transportation of the products to you and keep to the agreed costs/prices. For example, if your supplier (or their key suppliers) are based in a location hard hit by COVID-19, production may slow or stopped, and/or their ability to get those supplies to you is restricted. Consequently, those key supplies take longer to arrive. If authorities impose import restrictions based on the product origins, then more time will be spent at customs clearance points before you are able to utilise the goods. In such a scenario, you should consider setting up alternative suppliers, including local suppliers even if more expensive. Source them now and start price negotiations early. 

    Talk to Your Landlord

    Talk to your landlord If you think you may have trouble paying rent, talk to your landlord now. You may be able to discuss options such as a temporary rent reduction, a rent-free period, or a rent payment schedule. 

    We encourage you to call your landlord to discuss what arrangements can be put in place regarding your lease, particularly if your business can no longer operate.

    On 29 March, the Australian Government announced a moratorium on evictions over the next six months for commercial and residential tenancies in financial distress who are unable to meet their commitments due to the impact of coronavirus. Commercial tenants, landlords and financial institutions are encouraged to sit down together to find a way through this period to ensure that businesses can survive and be there on the other side.

    Talk To Your Bank

    If you have an existing small business loan from your bank and your business has been disrupted as a result of coronavirus, a Small Business Relief Package announced by the Australian Banking Association could help.

    A new loan deferral arrangement for small business owners is now in place. Contact your bank or financial lender to discuss this arrangement. We also recommend talking to your bank’s hardship team if you would like to discuss the options available if you need relief from any personal mortgages or loans. Visit the Australian Banking Association website for a list of hardship contacts for each bank.

    On 20 March 2020, the Australian Banking Association (ABA) announced that Australian banks will defer loan repayments for small businesses affected by COVID-19 for six months. The assistance package will apply to more than $100bn of existing small business loans.

    On 30 March, they announced that the threshold for total business loan facilities that could be deferred would be raised from $3 million to up to $10 million. The Small Business Relief Package will apply to more than $250 billion of existing business loans and cover 98 per cent of all businesses with a loan from an Australian bank.

    The expansion of loan deferral thresholds means that borrowers such as commercial landlords of properties can access financial support, provided they agree not to terminate leases or evict current tenants for rent arrears due to COVID-19.

    During this period banks have also agreed to not enforce business loans for non-financial breaches of the loan contract (such as changes in valuations of businesses).

    The new measures will apply in all sectors of the economy on an opt-in basis, under the following conditions:

    • the borrower must advise their bank that their business is affected by COVID-19
    • the borrower was current in terms of existing facilities 90 days prior to applying for support
    • commercial property landlords applying for support must not terminate leases or evict current tenants for rent arrears as a result of COVID-19, during the six-month repayment deferral period.
    • interest is capitalised, meaning that either the term of the loan is extended or payments are increased after the deferral period.

    Businesses with total loans of more than $10 million may also be eligible for relief but will need to be considered on an individual basis.

    The expanded Small Business Relief Package is subject to authorisation by the Australian Competition and Consumer Commission (ACCC).

    tax return paper

    Talk to the ATO

    The Australian Taxation Office (ATO) can grant you a deferral of certain tax obligations if your business is impacted by COVID-19. Call us to discuss your options. Deferring payments may impact on your eligibility for other stimulus package options, so seek professional advice.

    The government has enacted legislation to support its economic response to novel coronavirus (COVID-19) to help the economy withstand and recover from the economic impact of coronavirus.

    We are implementing processes to ensure you have access to these measures as quickly as possible.

    Check Your Licensing Requirements

    If you are running your business from home or have changed the way your business operates, you may need approval from your local government authority to carry out certain types of business operations. However, you may not need approvals for certain changes.

    For example: If your restaurant is now offering takeaway instead of dine-in food, using your commercial kitchen to prepare the food, no other approvals are necessary.

    If your hairdressing salon is now offering mobile services to your customers' homes, you do not require additional approval. However, check with your insurance broker that you are covered in this situation.

    If you are now running your business remotely from home, you do not need any approvals if your operations meet the definition of a home office under the Planning and Development (Local Planning Schemes) Regulations 2015, including that no clients or customers visit you at home, no staff work there with you and you don’t display business signage.

    It’s advisable to check with your local government authority for specific advice on any change of use.

    Consider Whether you can draw on your superannuation

    If you are a sole trader whose hours of work or income has fallen by 20 per cent or more as a result of the pandemic, the Federal Government is allowing you to access your superannuation. This is capped at $10,000 this financial year and a further $10,000 next financial year. The withdrawals will be tax-free.

    accounting & bookkeeping for retail

    Identify Employees with Critical Skills for Your Business

    Consider which of your employees are not easily replaced as well as which business functions need to keep operating regardless. Look for others who can learn the task. Outsourcing may be an alternative solution. Where such employees can work from home, make sure they take the equipment (such as a laptop) they need to work from home, with them every night in case you have to close your premises at short notice. Consider developing a special roster so that critical staff are always available to keep essential business systems and processes running.  

    Seek advice and stay up to date 

    Talk to your accountant or trusted advisor, including about your eligibility for government support and ability to ride out the crisis. Look at advice available from small business support organisations. Useful resources include this financial guidance for businesses in distress and free counselling from the national debt helpline and the bushfire financial counselling service. You can also find a financial counsellor near you. 

     

    Look into government support

    There is support available to businesses, including sole traders, from federal and state government. In particular, the government has announced its JobKeeper Payment to support employers to continue paying their staff. Sole traders are also eligible. For all government assistance, go here for more information or call the new hotline on 13 28 46. If you are a sole trader, this video from Ombudsman Kate Carnell helps explain what’s available and continue to monitor announcements.

    What government support measures mean for your business.

    Federal Government Funding & Support

    The Federal Budget will be deferred until later this year. The Prime Minister flagged there may also be further announcements in the coming days and weeks. 

    JobKeeper Payment

    The Federal Government will provide businesses with a wage subsidy of $1,500 per employee, per fortnight before tax. The payment will be paid to employers, for up to six months, for each eligible employee that was on their books on 1 March 2020 and is retained or continues to be engaged by that employer.

    Self-employed individuals can also get the JobKeeper Payment where they’ve suffered (or expect to) a 30 per cent decline in turnover.

    Employers must elect to participate in the scheme. They will need to make an application to the Australian Taxation Office (ATO) and provide supporting information demonstrating a downturn in their business. In addition, employers must report the number of eligible employees employed by the business on a monthly basis. 

    The program will commence on 30 March 2020, with the first payments to be received by eligible businesses in the first week of May as monthly arrears from the Australian Taxation Office.

    Employer cashflow boost

    Small to medium businesses and not for-profits (NFPs) with aggregated annual turnover under $50 million that employ staff are eligible for payments to help with cash flow so they can keep operating, pay bills and retain staff.

    Active eligible employers established prior to 12 March 2020 can access tax-free cash payments for the period March 2020 to September 2020.

    The payment will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020 upon employers lodging eligible upcoming activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.

    Eligible employers that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50,000.

    Eligible employers that pay salary and wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.

    An additional payment equal to the total of all the previous payments will be made in the July – October 2020 period, meaning eligible employers will receive at least $20,000 up to a total of $100,000. Entities must continue to be active to qualify for the additional payment.

    Concessional loans

    Under a Coronavirus SME Guarantee Scheme, SMEs with a turnover of up to $50 million will be eligible to receive new unsecured loans of up to $250,000 for working capital with the Government guaranteeing 50 per cent of the loan.

    Starting 1 April 2020 unsecured loans of up $250,000 per borrower and up to three years, with an initial six-month repayment holiday will be available until 30 September 2020. Borrowers will not have to provide an asset as security for the loan. The Scheme will apply to new or existing customers of banks and non-bank lenders. Lenders will not be charged a fee for accessing the Scheme.

    The Government is also providing a six months exemption from responsible lending obligations for lenders providing credit to existing small business customers. This applies to any credit for business purposes, including new credit, credit limit increases and credit variations and restructures.

    Small businesses with existing loans will benefit from the agreement by Australian banks to defer repayments on loans for six months. Bank hardship teams can also assist with business and personal financial arrangements..

    Apprentice wage subsidy

    Small businesses with fewer than 20 full-time workers will receive 50% of an apprentice or trainee’s wage. For each apprentice or trainee, the Government will provide up to $7,000 in wage assistance per quarter up to a maximum of $21,000. The apprentice or trainee must have been in training with a small business as of 1 March 2020.

    The wage subsidy will also be open to employers of any size that re-employ someone who loses their position as a result of the coronavirus downturn.

    Employers can register for the subsidy from early-April 2020. Final claims for payment must be lodged by 31 December 2020.

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    Director obligations

    To lessen the threat of actions that could unnecessarily push otherwise profitable and viable businesses into insolvency and help ensure businesses can resume normal operations when the crisis has passed, are the following temporary measures:

    Relief for directors from any personal liability for trading while insolvent

    Increasing the threshold for creditors issuing a statutory demand on a company from $2,000 to $20,000 and extending the timeframe for a company to respond from 21 days to six months

    Increasing the threshold for a creditor to initiate bankruptcy proceedings from $5,000 to $20,000 and extending the time period for debtors to respond to a bankruptcy notice from 21 days to six months and extending the period of protection a debtor receives after declaring an intention to enter voluntary bankruptcy from 21 days to six months. Providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.

    Help from the ATO

    The ATO will tailor solutions for owners or directors of business that are currently struggling due to the Coronavirus, including deferring payments, varying pay as you go instalment amounts and refunding past instalments, withholding enforcement actions including Director Penalty Notices and wind-ups.

    government tax return paper

    Backing business Investment

    Businesses with a turnover of less than $500 million are eligible for an expanded instant asset write-off for asset investments of up to $150,000. The threshold applies on per asset basis, so businesses can immediately write-off multiple assets.

    They can also access a 15-month investment incentive by accelerating depreciation deductions.

    Income support

    Expanded criteria and waiting period exemptions are providing access to income support (Centrelink payments) for those affected by the Coronavirus outbreak. A new coronavirus supplement of $550 per fortnight will commence from 27 April 2020.

    Temporary early release of superannuation

    The Government is allowing individuals affected by the Coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21. Individuals will not need to pay tax on amounts released and the money they withdraw will not affect income support payments.

    Victoria: Andrews Government support

    The Victorian economic survival and jobs package complements federal government support for business with tax refunds and deferrals, rent relief, new payment terms, a new business support fund and the removal of liquor licensing fees. 

    The State Budget will be deferred until later this year. There may also be further announcements in the coming days and weeks.

    Payroll tax refund and deferral

    Small and medium-sized businesses with a total payroll of less than $3 million will be refunded payroll tax for the 2019-20 financial year. Payroll tax for the first three months of the 2020/21 financial year will be deferred until 1 January 2021.

    Licensing, land tax and rent relief

    Commercial tenants in government buildings will be offered rent relief, and 2020 land tax payments will be deferred for eligible small businesses with landholdings of less than $1 million in value.

    Liquor licensing fees for 2020 will be waived for affected venues and small businesses. 

    New payment terms

    The Government will pay all outstanding supplier invoices within five business days. The private sector is urged to do the same where possible.

    Business Support Fund

    Funding of $10,000 per business is available to small businesses that employ staff, have a turnover of more than $75,000 and a payroll of less than $650,000 and have been subject to closure or are highly impacted by Victoria’s shutdown restrictions. You will need to provide a copy of your most recent Business Activity Statement (BAS). APPLY NOW or see Business Support Fund FAQs.

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    Working for Victoria Fund

    The Victorian Council of Social Services and Victorian Trades Hall Council, alongside the Victorian Government, will administer a $500 million Working for Victoria Fund. Displaced workers will be eligible to apply for different opportunities for paid work and to contribute to Victoria’s ability to manage this event and support the community. Register your interest to receive more details as they become available.

    Local government measures

    City of Melbourne

    The City of Melbourne has released a local economic stimulus package to support city businesses affected by COVID-19. The package includes the suspension of fees for Food Act registrations and street trading permits for three months, halving rent for eligible tenants in Council-owned buildings for three months and rates hardship support.

    Find out how your local government can assist

    Local governments across the state are doing what they can to support businesses and local communities at this time. To find out how your council can help your business, please visit www.viccouncils.asn.au/find-your-council.

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