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Managing money effectively during COVID-19

moneyEach year, the Australian Securities and Investment Commission (ASIC) publishes its insolvency report.

For 2019-2020, the top cause of business failure was inadequate cash flow or high cash use in 51% of cases.

85% of failed companies had estimated assets of $100,000 or less, and 38% had estimated liabilities of $250,000 or less.

The adage “it’s not about turnover, but what’s left over” is as important now as ever. During a recession and uncertainty over COVID-19, your organisation can take advantage of tax breaks, government stimulus packages, and other simple strategies for ensuring you keep cash flowing to your business.

These savings can be significant, especially if some or all your workforce is now working from home.

Fringe benefits tax and working from home

If you have provided your employees equipment to work from home or out of the office due to COVID-19 restrictions, some items are exempt from Fringe Benefits Tax.

Fringe Benefits Tax is a tax on non-salary purchases or gifts for employees. The maximum FBT tax is 45% plus 2% Medicare levy.

If you have purchased laptops or PCs, printers, or other electronic devices to help employees work from home, they will be subject to a minor benefits exemption.

Other waivers include salary packaged meals and entertainment and will not be scrutinised from FBT year ending 31 March 2020 to 31 March 2021.

If your workplace has been housing cars in employee garages, you may also be exempt from FBT liabilities.

Employers will also not have to pay FBT on accommodation, food, and transport if the travel and housing was provided as part of emergency COVID-19 assistance, or if the employee has been adversely affected by COVID-19.

FBT is also exempt from purchases of Personal Protective Equipment (PPE) to prevent the spread of COVID-19.

For a detailed breakdown, click here.

Government stimulus packages

The major government stimulus package is the JobKeeper scheme, which is open to eligible employers to continue to pay their staff due to decreased or interrupted revenue from COVID-19 shutdowns.

The other business support measure is the instant asset write-off expansion. Until 31 December 2020, businesses can claim $150,000 in asset write-offs, if their turnover is less than $500 million.

The same size businesses may also accelerate their depreciation deductions upon buying certain new depreciable assets. This applies to assets bought, used, or installed from 12 March 2020 until 30 June 2021.

Small Business Funding has also been guaranteed by the Federal Government. Until 31st December 2020, businesses can have five-year loans totaling $1 million guaranteed by the government, with lenders giving some businesses repayment pauses of up to six months, depending on their eligibility. These loans may be secured or unsecured loans.

Cash flow boost from the ATO

The ATO has given businesses and not-for-profits with employees between $20,000 to $100,000 in cash flow boost amounts as credits by lodging their activity statements up to the month or quarter of September 2020. These are the same amounts as the cash withheld from wages paid to your employees each month or quarter from March to June 2020.

Depending on your statement cycle, they will be paid in two or four instalments.

To see if your business is eligible, click here.

Simple money strategies for ensuring cash flow

According to Savvy Managing Director and business finance expert Bill Tsouvalas, automating accounts receivable is the priority when it comes to ensuring steady cash flow.

“If you are using an accounts receivable system from the last century, use the incentives and deductions available to upgrade,” he says. “Cloud accounting like Xero or MYOB means you can invoice faster and follow up on delinquent accounts. Invoices are not the same as cash in your bank account.”

Though every business is doing it tough, renegotiating terms with suppliers or offering discounts on early payments can get cash through the door much faster than waiting. “If you’re offering 90 day accounts, that’s doing a job and not seeing anything for three months,” Tsouvalas says. “Reducing terms and offering discounts may be more competitive than accessing invoice finance to overcome those shortfalls.”

Invoice finance is an arrangement with a lender which pays 80-85% of the total of an invoice immediately and a percentage of the remainder when it’s due. What’s taken out are factoring fees, calculated as a percentage per week, not including processing fees and other charges. These services are often used for long-term contracts in manufacturing or mining.

If your workforce is working from home, it’s also a good idea to start considering making the move permanent and reaping the savings. “Why hire a boardroom when you have Zoom?” Tsouvalas says. “The savings you’ll make by getting rid of an office can keep more cash on hand. Make a list of what you aren’t using and cut it from the operating budget.”

By taking advantage of just a few government stimulus measures and trimming the fat from your own business, you can ensure cash keeps flowing and your business not only survives, but thrives.

Bill Tsouvalas is CEO and Managing Director of Savvy, founded to give Australians access to finance using the latest technology. Savvy was named one of BRW’s fastest growing companies in 2015. Bill has dedicated himself to educating Australians on finance and economics, commissioning a Financial Literacy Survey in January 2020. He regularly writes on personal finance, business finance, and economics for a variety of blogs and websites. He is also patron of Kids Under Cover, a charity helping end youth homelessness.

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