Audio version 9’30” or listen on Spotify

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Shit’s About To Get Real

 

And so we move into the end times for businesses hammered by COVID-19.

In sectors like ours, they’ve been in suspended animation for six months waiting for some kind of miracle.

Now shit’s about to get real. No point in sugar-coating this, weaker businesses are going to die.

Let’s try to stop your business being one of those. Here are a few things you should be across to save the day.

(Sorry international readers, some Australia-specific details here but also some relevant general points)

JobKeeper: The Twilight Months

 

JobKeeper goes down this week. For most employees, it goes from ‘just enough to live on for now’ to ‘this will be pretty ugly’. Particularly casuals on less than 20 hours a week, whose JobKeeper is halved.

You could argue it’s unfair for industries still shut down to get the same support cut-back as those that are a luxurious 30% down. International travel, music festivals and half the businesses in Melbourne are feeling forgotten right now as others brush off six months of inconvenience.

Credit where credit’s due though, we would be a very different business today without JobKeeper. We have 65 full-timers and it’s allowed us to keep the team together. We’ve had our staff on three days a week. That still leaves a pay gap above JobKeeper which we’ve been topping up.

Our people have been really positive when they had abundant cause not to be. Shout out to our Melbourne team, who have somehow kept the business afloat when even our virtual studio pivot was shut down for months, working from their home isolation cells. A Biblical miracle.

We’re confident our business will survive.

The possibility that it might not has been a creepy minor-chord violin sound in my mind 24/7 since March, despite putting on the confident public face required in these situations. In the last couple of weeks that sound has faded right down.

Our business will be quite different, and years of brutal work remain, but we’re up for that.

Stay On Top of Staff Entitlements

 

Now is the time to get your accountant to advise on your non-Jobkeeper obligations.

It’s a minefield. Do you have to pay superannuation for staff on JobKeeper? Are your staff on reduced hours still accumulating leave entitlements at their previous full-time rate? Probably.

The Fair Work Coronavirus site is a good resource to get a sense of where you stand. But don’t go by what you reckon or what you want to be true. This is accountant territory.

I’ve watched plenty of businesses go under over the years. The tipping point is so often the epic backlog of tax and staff entitlements they weren’t paying, trying to keep the business alive. Then the tax office wants a chat and it’s all over.

Brutal truth: it feels like a lot of businesses are keeping staff on, despite knowing they won’t have work for them in the future. They just can’t afford to let them go, because paying out all their leave entitlements will push the business over the edge. So they cling to JobKeeper.

It’s a slow but vicious trap, caught between no revenue and escalating liabilities, and it will be one of the business collapse themes of 2021.

 

Are Your Customers Insolvent?

 

Back in March the government green-lighted trading while insolvent, on the reasonable grounds that half the country was doing it. That moratorium is now extended out to 31 December.

After that the government has proposed a new bankruptcy structure for businesses with liabilities under $1M. It’s more like the US Chapter 11 system, and seems helpful at first glance.

There’s more detail here, you can appoint a ‘small business restructuring practitioner’ with powers to shield you from creditors, rather than the current system that leaves you at the mercy of outside administrators or receivers.

That’s good, if you’re the one with the debts. What about the flip side of that?

As business activity returns, you risk giving credit to zombie businesses. Yes, you want the revenue so bad. But it’s not revenue if they don’t pay.

If you do the work then they say:

 ‘sorry, we just can’t pay you right now, our client can’t pay us, shoulder-shrug emoji.’

… what exactly are you going to do?

That’s the big risk right now: companies that are already dead taking you down with them. That domino effect is going to cause havoc over the next twelve months.

Offer a better deal for upfront payment. Get business clients to use their personal credit card. Whatever you have to do:

??? GET THE CASH BEFORE YOU HAND ANYTHING OVER  ???

 

The Finance Holiday Is Over

 

The Australian Banking Association is ending its six month holiday on loan repayments. This will hit heavy capex businesses hard, like the technical companies in our industry. Most are heavily lease-financed.

We’re fortunate enough to have very low debt. That wasn’t purely luck, we’d been expecting a regular economic downturn for a couple of years so we had bunkered down. We have a few leases, nothing huge.

The bank has been in touch over the last few weeks, like

‘Heyyyyyy, how’s business? Oh and can you start your lease payments again please.’

You have options to delay for another four months, but after that, things start getting hairy. Banks have been pretty helpful since March, but they’ll only stretch so far.

As for the resale value of equipment under finance: at the moment you may as well put it in the desert with all the passenger jets. It has no cash value whatsoever.

The big question is: do you keep extending your credit out? Or take out one of those unsecured business loans the government arrounced.

Think really hard before you do this. As things re-start, your business will come back under the twin burdens of COVID restrictions and a depressed economy.

On top of your regular overheads, you’ll have a bunch of crushing obligations you put off to keep the business alive. Extra loans. Payroll taxes that weren’t dropped, just deferred. Postponed rent payments.

If your business was low-margin before COVID, like under 10% net profit, it’ll likely take you the best part of a decade just to shake all these monkeys off your back.

Just to get you back to where you were in February 2020.

 

Questions To Ask Yourself

 

Entrepreneurs are naturally optimistic. Time to be realistic and ask yourself some questions if you’re in an affected sector.

Are you in a position to take advantage of some of your competitors closing down? 

What are your debt levels compared to those competitors? Who’ll go under first?

Are you excited by the idea of redesigning your business or do you just want it to go back to the good old days? (Spoiler alert: good old days will be in short supply for years.)

If new directions are required, can you rustle up the capital you’ll need?

Do you have good spreadsheet skills? Because survival will depend on daily checking of cash flows and all those liabilities above.

What are the chances of you getting a job?  I’m the world’s biggest fan of owning your own place, but in times like this you have to be realistic and you should consider every option. I’ve seen sole traders sweat it out for years, buried in admin and pain. Then a client offers them a salaried job. Lifting that weight transforms their lives.

Will your staff stick around on ever-declining JobKeeper?

Without good answers to these questions, you’re heading for trouble.

 

The Veolia Option

 

Lately some of our casual staff have been leaving the industry. A popular destination is driving waste trucks for French waste management giant Veolia.

Just like their event gig, those casuals are starting at dawn and driving trucks around the city. Unlike events, they knock off mid-afternoon so they can be there for their kids. They never work weekends, and the pay is … great.

 

 

I’m not going to make some cheap joke about garbage, it’s a legit career option.

Our industry will lose a generation of talent to waste disposal, food supply, aged care and other virus-proof industries.

And if you’re working in an affected field, maybe you should give that some thought. It’s going to be a long, slow climb out of here. If you don’t love what you do, you might be better off changing industries if the option’s there.

Sorry not much light entertainment this week but sometimes you have to call it how it is. Good luck with everything folks.

 

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Also if you liked this why not read Why COVID Looting Will Cost You Long Term.