The COVID-19 situation has been unfolding around the world for months now, but after a week where it feels like everything has really “stepped-up” in Australia, I found myself thinking more and more about not just my business but how others were dealing with the daily news updates, changes in policies and planning for their businesses’ future.
I got in touch with Michael and Tim from HT Capital, a long term partner of DN, who are perfectly positioned to offer a helpful perspective to small business owners in the same position as us.
Unsurprisingly, they’ve both been flooded with questions about the government stimulus package and what steps individual companies should be taking. There is A LOT of information going around at the moment, some of it helpful, some completely the opposite.
We discussed the importance of really taking this opportunity to take a step back, look at your cash flow, pipeline (short and longer-term), different scenarios and how the situation could affect your individual business, rather than diving immediately into getting access to government stimulus packages. It’s important to assess your own position as every business is unique. How can you shape your business to be in the best possible place in 12 months time?
As well as financial changes, this could mean a change to some of your overall business strategies. Have the confidence to make changes where required and move with the market, while also keeping a focus on your expertise and maintaining your company values and reputation. All businesses need to be agile and adapt, and taking the time to assess will be crucial.
The big takeaway from our conversation was to first look inward, assess YOUR situation and scenarios, then speak to an expert. Find out what you’re entitled to, what support will actually work best for your business, when this will come into effect and what you need to do in the meantime.
Many of these packages that are coming out will be detail specific and having someone you trust to make sense of the information and what it means for you will be essential.
We also discussed the importance of keeping open lines of communication during this time, primarily with your staff, as well as potential assistance to tenants and investors.
Take a listen, I’d love to hear your thoughts about the plans you’re making to keep your business afloat in these uncertain times.
Contact details for advice if needed:
Accru Harris Orchard: [email protected]
Financial Planning Advice:
Griffin Financial Services – Scott Dawkins (Mike’s Financial Advisor) – [email protected]
East Private Wealth – Jeremy Kells (Tim’s Financial Advisor) – [email protected]
Workplace Horizons – Laurie Bolton: [email protected]
Jump Property – Lou Marchesan – [email protected]
Let’s not forget finance/lending strategy and advice:
08 8311 3714
Transcript of Sam Davies in conversation with HT Capital
(00:01) Hey, everybody, Sammy Davis here. Welcome to another episode of Humans aren’t Robots, the podcast where we delve into the human side of tech and business. It has been a crazy couple of weeks for everybody here on planet Earth. I had a conversation with the boys from H.T. Capital, Tim and Michael. They spend a lot of time talking to SMEs about lending and debt and have some really great insights into the current economic environment and also the stimulus packages that have been offered by the federal and state governments at the moment. That was my primary interest to have a conversation as small business owners ourselves and how these stimulus packages are going to potentially benefit and help lessen the burden of what is happening out there.. I’ll put a caveat in there that this is just a casual conversation and you really should be seeking advice. I think that the key takeaway from this conversation was that even when things are going crazy and running a million miles an hour, please do get good advice. If you’re making decisions around HR or lending or business, seek out the appropriate professionals to discuss this with. But without further ado, let’s jump in with the boys from HT Capital and hear about how some of the options that are available from the government can help you and your business to get through these times.
(03:09) How does the small business cope in times like this now?
(03:26) I should also touch on the way we operate under a credit license as well. So we need to get a disclaimer. That what we talk about today is just simply our opinion. And it doesn’t take any special circumstances into consideration. So we always recommend professional advice.
(04:17) What I’ve done over the last week is really dive into our cash flow position as of today and look at the pipeline over the next couple of months.But what’s your guys thoughts on, as a small business and being one yourself, what was your first port of call once you realized this lockdown was happening and we can start saying that this is going to be longer than a few weeks and months and months in charge of our everyday cashflow?
(05:10) Confidence is deteriorating rapidly. So we went and prepared a number of budget cash flows based on a number of scenarios we shouldn’t have that have to get down to doing so. Twenty five per cent of the normal amount of business that we do for 12 months and hopefully that’s the worst case, I call that doomsday budget. But what does that look like? What are we in a position to personally tip in to keep things going, to protect our staff? And what costs or projects that we wanted to do on the business that we can push out for the time being. But ultimately, a big part of that and getting comfort from the worst case scenarios was understanding what the current round of government stimulus to small business looks like for our business.
(06:25) This is one of those times where businesses that aren’t budgeting or that don’t have a good grasp on their numbers themselves or with an accountant or a financial adviser of some sort, you do start scrambling and looking in and not understanding that. You can start making some decisions around how we can cut costs or look at other measures to stay buoyant throughout those projections.
(06:56) We’re very aggressive in business, we’ve always invested and backed ourselves to chase that top line revenue growth. So this is quite a change for us to actually have to sit down and take a step back and go, the next 12 months is going to be tough. So let’s put our heads together and actually try to work out how we can shape the business in the best position possible. And that’s what we need to get along with.
(07:38) Having that confidence you need to agile and move with the market, whatever’s happening outside of our control. I think staying positive and putting out positive messaging and still servicing our clients as best we can is what you want to be doing.
(08:30) Now we really need to focus on us being in a buyers business and helping our existing client base and new clients get through this period with our expertise. Our expertise is around banks funding and ultimately access to cash.
(08:47) There’s quite a bit of confusion around the payment of up to what it was twenty five thousand initially, but now one hundred thousand dollars for the companies from the ATO. You want to go through how that works?
(09:02) Coming back to our disclaimer, this is my understanding of how it works, but would suggest that small businesses speak to their accountants about this. Initially there was a stimulus package that was going to be based around the PAYG component of employee salary primarily, and it was going to be effectively, over the six month period, refunding 50 percent of PAYG, withholding up to twenty five thousand dollars. It then got revamped to be one hundred percent of PAYG withholding for the six month period, and it’s calculated in slightly different ways, depending on whether the business pays their PAYG monthly or on a quarterly basis. But it’s effectively one hundred percent over that period, up to 50 thousand. And then that amount of agains over the next four months, up to a maximum of one hundred thousand in total. Ultimately, there is for small businesses, anywhere between twenty thousand and one hundred thousand dollars worth of support over the next eight months or so in terms of the cash flow, being a proprietary limited company as opposed to a sole trader. The support for sole traders will continue to evolve and emerge.
(11:10) That would just be a reduction or essentially the removal of that PAYG component?
(11:25) That’s our understanding. The businesses that pay their PAYG monthly, seems as though they’re going to ignore what’s happened in January and February and base the first quarter on three times in March. So if the March component has been a little bit higher there may be an actual cash injection from the ATO operating 14 days after when the PAYG was due. But in most cases, that component is not being paid, which in reality, could be twenty to twenty five, maybe even 30 percent of the businesses employee costs during this period.
(12:16) I just want to stress again the importance of the cash flow. So we’re talking through what the stimulus is, but it’s important that you get an understanding of every business, get some understanding of what they’re entitled to under this package, and then sit down with your accountant and actually short term for the next couple of months and look at when these packages are likely to hit and make sure that you can keep the show going on between these funds.
(13:25) Understanding the cash flow requirements in the near term and when the support is likely to actually benefit. It’s really important because it’s all well and good to have that support coming, but I do worry about a lot of small businesses out there that it’s going to come too late.
(13:44) Having someone that goes across those numbers in these times that you can just rely on and say, look, I need to put together a projection with these variables is really important.
(14:21) So cashflow for us is having an understanding that daily cash flow is an interesting goal that you are getting right there.
(14:58) So probably now’s the time for sole traders to actually start to sit down and think about the appropriate structure, especially if they are going to expand, they need to be having that discussion with their accountant as well. Is it time to move out of sole proprietor or a possibility that the horse has bolted on this type of stimulus?
(15:39) There’s been a lot of talk about businesses trying to capitalize on this loan, so essentially, in my understanding, what’s come out, they’re saying that the government’s going to be backing 50 percent of the value of certain loans to increase lenders willingness to provide loans to businesses. I’d be keen to hear your thoughts from the financial institutions perspectives, perhaps?
(16:13) On the commercial side there’s very much two different lines of communication. You’ve got a small business finance or SME finance, there’s also the retail side of things that are experiencing cash flow shortages and hardships. So on the business side,the basics are beaten up from pillar to post from a reputational point of view since the royal commission, so they’re trying to be very responsive and receptive to the shops in the market like this. But it is a brand new thing, so from my perspective, they came out and pretty much the same position that they’re going to look to provide up to a two hundred fifty thousand line of credit for small businesses, and that’s 50 percent government back. And then they’ll also look to defer commercial line requirements for up to a period of six months across a bunch of different products that are out there. And then they’ve also all committed to reducing interest rates as at the start of March across a whole lot of products.
(17:48) Looking at that self reflection and getting a good gauge of what the short term and then longer term future looks like from a business perspective is more important now than going out and trying to necessarily borrow money.
(18:06) Our advice in this regard is to just just take a breath hold back a little bit. The banks aren’t in a position to actually execute this at this point in time, they will probably be in the next day or so or weeks. If a client defers their payment, we don’t know what implications that has on them or their future borrowing capacity. So if your business is relying on funding, we’re not sure if you will be able to defer your payments for six months and then go and make these acquisitions and fund these acquisitions after that. There’s an implication through some of these lenders of hardship, as soon as you take this, as soon as you put your hand up and say I want that package, you are flagging to the bank that you’re under the cash flow stress, which is an important thing to note. Things like these are tools for clients to use. But what we’re saying is don’t just take them, do the work around your remodeling and your cash flows and work out if you need them and keep them in your back pocket.
(21:30) With home loan repayments, the ability to defer them, in most cases up to six months, that’s currently accessed through the banks, if people are experiencing hardship it’s there for them. And we do have some clarity that if people get back on track after that, it won’t necessarily adversely impact their credit score.
(24:07) I think that your reputation from a financial lender perspective mirrors that from a brand point of view.
(24:28) So these tools are there, our clients will take advantage of them, that they definitely will, but it may not be we’ll just take everything. And if we need to we might take the ability of that 250 government backed facility, just to be a bit of a cushion. Your reputation is huge in lending. And if you can be seen at the end of this as having acted appropriately and had really strong financial management throughout this period the lenders will look at you lovingly in 12 month’s time as opposed to hitting you on the nose.
(27:08) Investment properties. If their tenants are coming to them and saying we can’t pay rent, what options potentially do they have?
(27:39) We’ve got a number of clients that have a number of properties and they’ve been doing this for a while. I’ve been paying attention and waiting with more or less bated breath for the government to come out and say exactly what they’re proposing here. Talking about potentially making it so that landlords can’t evict tenants who aren’t paying their rent during this period, which understandably a lot of tenants are in hardship. At the same token the government hasn’t come out and said what that means for the landlords. We need to see what some clarity is there. But from my understanding, there will be relief for renters and there will be some sort of relief for landlords. So key advice is, if you are a tenant who can no longer pay rent, there will be some clear guidance coming shortly, but probably open communication with the property manager. That would be a good place to start rather than the landlord directly. If you are a landlord, make sure that you are involving the property manager who understands the legal aspects and that you’re speaking to your landlord insurance provider. Communicate through proper channels.
(31:37) This is going to have wider implications as well in the commercial space, especially commercial tenancy.
(33:48) And probably one area that you are probably going to be seeing, particularly for businesses that are needing to potentially wind back what they’re doing on the staffing front, and I think that’s probably the nicest way you can put it, is making sure that they’re getting sound HR advice, because there’s going to be a right way to do things and there’s going to be a whole lot of nearly right way of doing things. And I think at this time more than ever it’s important to do things the right way.
(35:55) Comes down to the reputation that you touched on. We want our business to be viewed as a desirable place where we want people to seek us out and say I want to work with us, we want a fun environment and we want the best people to work for us, so it’s a reputational thing for us. So we need to make sure we’re doing everything by the book with regards to HR and that way we’re looking after our staff.
(36:25) Transparency is really important with your team. I think if you want to build a good culture and build a business where people do want to come and work, having those open chats with people. So getting your team and having a conversation once you’ve done those cash flow projections about what does this look like in reality? So there will be some tough decisions that business owners are having to make and are already making. Have one on one discussions with your staff.
(38:05) The worst thing a business owner can do is just secretly squirrel where the business is at, but actually just be open as you said and that does a lot for this start. If you’re not sharing unpalatable news, they’re fearing that it’s worse. If you are open consistently and honestly in tough times like this staff will trust what you tell them.
(38:38) It seems to be the takeaway from our conversation that you really do need to get good advice making quick decisions. So making sure that you’re actually following procedure. If people are working from home, which a lot of businesses are now, while they’re at home, they still come under some of your health and safety practices and other things within their home.
(39:34) And that’s particularly relevant at the moment with most businesses having people working from home where practical. Seek advice here, but you can download working from home sales to education checklist and you can ask the staff to run through a checklist of skills at home and send that back in to say they’ve looked at it and they do have an appropriate place to work in. I’m sure there are experts out there and you should talk to them.
(40:55) Everything we’re talking about, we don’t have details on every aspect of everything we’re touching on, whether it’s the financial, financial viability of the business or health and safety, it’s all about protecting the business during this time. So it’s everything we’re saying is that as business owners, our focus needs to be for the next six to 12 months My advice is to do everything you can to protect the cash flow, which is your business, and take a long term view of it and and really, really do everything you can to navigate the next six to 12 months legally.
(41:56) I think that’s a nice place to close up here. I think that a lot of business owners are going to learn a lot through this period. But I think that we can come out of this stronger. So that’s definitely the attitude I’m taking with my business. And it’s going to be a challenge. But challenges are fun sometimes.