Despite the belief that businesses’ survival chances get better after the five-year mark, new research indicates that established firms will not be insulated from the economic carnage.
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.
How new and older businesses fared against each other
The survey did not cement the common belief that business financial security grows with time.
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 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 year with reasonable accuracy.
A similar proportion of businesses said they experience significant ups and downs in revenue, with 34% of young businesses and 35% 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.
53% 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, 64% of young businesses admit they experience cash flow issues. 14% 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 (10%) of young businesses who make the same level of profit.
“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, some big businesses got their finances in order early, giving them 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,” says Helen Baker.
“Business owners should research and review schemes to 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,” says Helen Baker.
Money.com.au highlights 5 Government measures
Coronavirus Small and Medium Enterprises (SME) 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 is available until 30 September. Phase two commences on 1 October with both secure and unsecured loans available, up to a maximum of $1 million.
Cash flow boost
Not-for-profits and SMBs 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% 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.
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.
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 employer’s income until 31 March. It is also available for new employers who re-hire apprentices and trainees who were let go during the pandemic.
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.
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 areas.