To Our Valued Clients
Federal Government Stimulus Update 22 March 2020
✔ Key Package Highlights – What you may be able to take advantage of
✔ Banking & Other Relief Options
✔ Preparing your business for the implications of COVID -19
We know that these times are filled with confusion and uncertainty but, we thought it important to take the earliest opportunity to reach out to you, and provide the latest update on the Federal and State government’s ongoing response to the impact of COVID -19.
Many of our clients are starting to reach out to us, to find out what types of relief packages are available for you personally and your business.
Please contact us immediately if you have any questions, concerns or issues that you need help with or just want to reassure yourself that you are okay.
1. Key Package Highlights – What you may be able to take advantage of.
Prime Minister Scott Morrison has unveiled $66 billion worth of measures on Sunday, 22 March, including relief for retirees and a new wage or “safety net” for workers who lose their jobs.
“There is a lot of pain coming but we’re going to cushion the blow as best we can,” Mr Morrison said.
It has been designed to help businesses and workers ride out the economic calamity caused by COVID-19. Taking into account the first round of stimulus, and the measures announced by the Reserve Bank last week, the government said the total economic assistance package was worth $189 billion or the equivalent of 9.7 per cent of Australia’s Gross Domestic Product.
The financial impact is so severe and uncertain, that this second package is unlikely to be the last.
You can find out more about the Federal Stimulus Package here: https://treasury.gov.au/coronavirus/businesses
1. Small Business Cash Payment – small businesses will be given a cash payment of between $20,000 up to $100,000 to keep their staff employed during the coronavirus crisis. This will also be eligible not-for-profits.
– The payments will be delivered by the ATO as a credit on activity statements due from the 28th April 2020 onwards.
2. Unsecured Loans – with companies reluctant to borrow, the Commonwealth is also offering to guarantee unsecured loans of up to $250,000 for a term of up to three years.
– This will commence by early April 2020 and be available for all new loans until 30th September 2020.
3. Welfare Payments – in addition to the $750 payment for welfare recipients announced previously, an additional $750 payment will be paid to social security and veteran income support recipients and eligible concession cardholders.
– The first payment has been marked for 31st March 2020 and the second payment due for the 13th July 2020.
4. Superannuation Access – individuals feeling the financial stress of coronavirus can gain access to $10,000 of their superannuation tax-free in 2019-20 and a further payment in 2020-21. A total of $20,000 will be available over the coming months.
– No tax will be imposed on withdrawals. Applications will be available from April 2020.
5. Superannuation Withdrawals – there is now some flexibility in relation to retirees drawing down on their superannuation monies. Normally, a minimum of 4% of your account balance must be withdrawn, this has been halved to 2% for the 2019-20 and the 2020-21 financial years.
6. Bankruptcy Relief – the package also announced changes to the bankruptcy rules & various definitions under the Corporations Law. These changes are designed to not put immediate pressure of directors and business owners.
7. Deeming Rates – the social security deeming rates have now been lowered in response to the low-interest-rate environment.
– This will take effect from the 1st May 2020.
8. Income Support for Individuals – the Government is temporarily expanding eligibility to income support payments and establishing a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight.
– This would be paid to both existing and new recipients of the eligible payment categories. This will take effect from 27th April 2020.
2. Banking & Rent Relief Options
1. Interest Rate Decrease – on Thursday, the Reserve Bank of Australia enacts an emergency interest rate cut.
The Reserve Bank has cut rates by .25 per cent for a second time this month as efforts continue to contain the economic impact of the coronavirus.
2. 6-Month Loan Repayment Deferrals – the Australian Banking Association (ABA) says all small businesses hit by the coronavirus pandemic will be able to access a six-month deferral of all loan repayments.
– Repayment of $100 billion in small business loans put on hold amid coronavirus outbreak
– The Banking Association expects that will put $8 billion back in small business’ pockets
– The banks will consider home loan relief measures if households enter mortgage stress.
We recommend that you consider the following steps:
Contact your financial institution(s) and be sure that all interest rates decreases have been passed on and that you have the best deal possible
If you are struggling cashflow wise, again, contact your financial institution(s) to understand how the 6-month loan deferral system applies to you.
We have had a few clients contact me around equipment or motor vehicle financing, does it apply here also? The short answer is that every financial institution will have their own rules and policies in place. My recommendation would be to make a phone call & ask. Whatever you can do to help your cash flow, both personally &/or business, would be the best option in these uncertain times.
Speak to your loan broker who can contact the banks on your behalf, or help you refinance, to ensure that your cash flow is protected & somewhat minimised during these uncertain times.
Other Options – Possible Rent Relief
Rent Relief – there are many big landlords coming out and saying that they are willing to consider rent relief for there tenants in some form. Our recommendation would be to contact your landlord, no matter how large or small, and ask if they can provide some form of assistance. Some ideas might centre around:
a deferral arrangement for a period of time, and/or
maybe a rent-free period for a period of time, and/or
Maybe using the bond the landlord has to cover rents in the short term and then you could catch up at a later date.
For example, we had one client that reached out on Friday that he was able to arrange with his landlord who had a bond of 3 months that his rent would be reduced by 50% for a period of 6 months, and the landlord would take rent of 50% per month from the bond on hand. This helps the tenant with cash flow over the next 6 months, ensures that the landlord is not missing out and all can then be caught back up down the track. A win-win for all parties.
3. Preparing your business for the implications of COVID -19
At Chan & Naylor we have put together a short list of actions that your business should consider as part of a risk management strategy and that you should consider taking now to position your business in the best possible position over the next 6 months.
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. This will result in people consuming less and purchasing in different ways. It will also impact staff availability, especially for businesses where employees cannot work from home.
It is also likely that your operations will be impacted by supply disruptions as your suppliers’ grapple with the same issues.
We strongly urge all our clients to reach out to us so that we can provide you with assistance across a range of options including:
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 a business will likely be most significant in the following areas:
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.
Finance – particularly if your cash reserves are low.
PERFORM A FINANCIAL HEALTH CHECK ON YOUR BUSINESS
Knowledge of the financial health of your business is fundamental to assisting you 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 possible previously unthinkable scenarios, such as a 50 to 80 per cent decline in
sales over three to six months, or a supplier being unable to supply you a key item for six weeks.
ACT NOW TO IMPROVE CASH FLOW
After re-doing your budgets and determining the financial health of your business, including your cash reserves, you are likely to find your business will struggle with cash flow in the near future. You must therefore act now to improve cash flows.
The first step to improving cash flow is to prepare a cash flow forecast and updating that forecast throughout the crisis, possibly weekly. This will give you forewarning of any cash flow problems so you can act early to address them.
TALK TO KEY SUPPLIERS
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.
IF YOU ARE IN FINANCIAL DIFFICULTY, SEEK PROFESSIONAL ADVICE EARLY
During the crisis, regularly ask:
is your business able to pay your creditors, your tax obligations, employment obligations and make loan repayments as they become due?
Do you have adequate financial reserves to cover debts due and payable in the next few months?
If you answer no to these questions, you should immediately seek professional advice, as your company may be insolvent or near insolvent.
We are here for you. Do not hesitate to reach out to us.
Stay healthy and positive!
Managing Partner & CEO
Chan & Naylor | Melbourne & Moonee Ponds
Tel: 03 9370 4800
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