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 full survey results, including breakdowns across organisation size, location and years in operation, can be found here: money.com.au/financial-security-study
The survey did not cement the common belief that business financial security grows with time. In the survey, 61 per cent 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 per cent 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 per cent of established businesses and 49 per cent 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 experience significant ups and downs in revenue, with 34 per cent of young businesses and 35 per cent of established businesses saying their revenue differs 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 (53 per cent) 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 (64 per cent) of young businesses admit they experience cash flow issues. Fourteen (14) per cent say the issue is serious.
A higher proportion of established businesses also turn over higher profits: 20 per cent make more than 30 per cent profit on revenue, compared with half the amount (10 per cent) of young businesses who make the same level of profit.
Licensed financial advisor and Money.com.au spokesperson, Helen Baker, says: “The one advantage established businesses have over young ones is 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. 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.”
Money.com.au highlights 5 Government grants and support measures for businesses:
1. Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme. The Government is guaranteeing 50 per cent 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 30 September, with phase two commencing 1 October – which will see both secure and unsecured loans become available, up to a maximum of $1 million.
2. Cash flow boost. Not-for-profits and small businesses with a turnover of less than $50 million 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 per cent 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 $500 million to immediately deduct capital purchases of up to $150,000 from their tax until 31 December. From 1 January, the scheme will only be available to small businesses with a turnover of less than $10 million, 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 per cent of their eligible employer’s income until 31 March 2021. 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: money.com.au/financial-security-study
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