Mangement For Design

Quarterly eMag

What Happens When JobKeeper Ends? Is Your Business Prepared?

Management for Design wrote:

“We are facing an economic crisis created by unprecedented and unforeseen circumstances. This requires unprecedented action by the government. We need to do much more than just expect businesses and workers to “get on with it” and suffer the consequences. The tangible support and messaging from the Federal Government and health authorities is inadequate. It is not helping, and is certainly not reassuring architects, engineers and designers!”

The fiscal response from the Federal and State Government was indeed unprecedented. We now have a “debt burden” that will probably never be paid down. Certainly, that is far down the list of priorities for our political leaders and economic “experts”.

The Impact of JobKeeper

It’s one thing for a business to fail because it has difficulties balancing income and expenses or generating work, but another when the government makes it unprofitable to reduce viral infections and deaths. Having said that, the JobKeeper payment scheme was certainly a lifeline for many Architecture, Engineering and Design (AED) businesses and individuals alike. The scheme was designed to assist businesses that were (supposedly!) negatively impacted by COVID-19 to prevent business closures and job losses. There’s no doubt that JobKeeper was a necessary measure—our government moved comparatively quickly, both with lock-downs and financial support to help businesses with the inevitable economic downturn.

Across our industry, up to 60% demonstrated a downturn of at least 30% of income to apply and successfully receive JobKeeper support!

JobKeeper has been the most significant and successful COVID-19 business support measure, providing substantial cash and employment support to impacted businesses across Australia. The scheme was extended a few times, and despite talk of a more ‘targeted’ state and industry specific extension, the official scheduled JobKeeper end date is 28 March 2021. For businesses that have had projects stopped, postponed, and delayed JobKeeper (and other tax relief measures):

■ provided vital cash flow
■ enabled the retention of employees
■ and for some to maintain profitability

Without measures such as JobKeeper and tax relief, we’d be looking at a very different economy and profession today. These measures have provide  businesses with much-needed cash flow, helped to keep consumer spending alive, and—to date—helped us to avoid serious economic fallout.

A Year of Transition

We have seen a dichotomy of fortunes, not only across industries but also within our industry, with results that vary according to market sector and state. There are some sectors (and businesses) that have remained virtually untouched by COVID-19. And not only that, there has also been an entirely different response state-to-state, which means we now have six or seven separate economies running in one country. Victoria is still grappling with the consequences of the initial “quarantine disaster” and some of the strongest restrictions in the world.

Having said that, Architects, Engineers and Designers were able to respond to “lock-downs” by rapidly moving to “remote working” with comparatively minimal disruption to outputs, unlike other industries, like tourism and hospitality, that have taken massive hits.

Of course, one of the biggest problems with JobKeeper is the fact that it’s a blanket solution to deal with a host of different issues. Broad initial eligibility rules meant that better-performing businesses could adjust their results and continue to receive payments. In turn, this has resulted in some businesses ending in a stronger position than before the pandemic, with extra cash flow and less business stress! Some businesses are even considering returning a portion of their JobKeeper subsidies due to their stronger than anticipated financial position.

Meanwhile, investor confidence has soared, with an unprecedented stock market boom from the end of March. Consumer confidence has also continued as eCommerce saw its most significant growth in history. While this all sounds positive on the surface, it points to real concerns about what happens when JobKeeper ends.

Overall, the true economic impact of COVID-19 won’t be seen for another one to two years. What we’ve seen is that most businesses that were in a strong position before Covid are emerging from the pandemic (“panic”) even stronger.

A Future Without JobKeeper

The number of workers collecting JobKeeper wage subsides Australia-wide has fallen to a little over 1.5 million between October and December 2020 according to the Australian Taxation Office (ATO). This figure is much lower than Treasury’s estimated 2.2 million recipients predicted to stay on the programme. It also continues the downward trend that began in Q4 last year.

Treasurer Josh Frydenberg believes the results prove the Federal Government is ready to pull the plug on wage support, which was extended until 28 March. Australian businesses need to be prepared—they’ve had a good 8-9 months to consider their position and plan for what lies ahead. While many businesses have no doubt done this, others have used this time to hibernate or have been reluctant to change.

Although many businesses will struggle without the government subsidy, JobKeeper will (and should) end in its current format. A more targeted (and sophisticated) solution may be required for specific industries over the next 18 months to keep small-to-medium-sized businesses operational until we can return to pre-covid normality.

Preparing Your Business

Dr Steven Kennedy, secretary to the Treasury, expects job cuts to take place once JobKeeper ends. The question is to what extent.

“I’d expect it would mean there are some peoples whose employment won’t be present and job losses would come with that,” Dr Kennedy said at a hearing in parliament.

According to Josh Frydenberg “the government will now direct its focus on the economic recovery plan, which will include measures such as tax cuts, business incentives, the JobMaker Hiring Credit and a record investment in skills and training”.

It’s stating the obvious that businesses need to plan for what will happen when cash safety nets are removed. How will they cover costs? How will they adjust their operations? How will they continue to grow revenue? While some businesses were hit hard by COVID-19 lock-downs, many have already transitioned away from JobKeeper in the second round and most other businesses have been planning for the end of JobKeeper.

Knowing when cash is coming in and going out and having the right tools to deal with fluctuating sales, cover procurement, and capture opportunities are all key. Getting the right working capital in place lets businesses capture the opportunities that have come out of the pandemic.

Changes such as remote working and on-line procurement have transformed the way many AED businesses operate. It’s the perfect time to consider what has worked well, what you want to continue doing, and how you can create opportunities to reduce ongoing costs and increase revenue.

Companies that are still experiencing cash flow issues at this point need to look at the business more broadly. Without a doubt, underlying business issues were compounded by the COVID-19 crisis, magnifying and accelerating the impact of these issues for those businesses. If businesses are likely to struggle to meet their overheads without JobKeeper, they should speak with their advisor to identify options. Restructuring could help the business emerge from this crisis stronger than before.

For businesses that know they will need to make redundancies due to issues of affordability when the JobKeeper subsidy ends, a question arises as to whether there are any advantages of making redundancies before the JobKeeper end date. One example of this is a situation where an employer has employees who are not actually performing any work (having been stood down on zero-hours) but whose wages are being funded by the JobKeeper payments. By making employees redundant before JobKeeper ends, employees will stop accruing leave that, in the case of annual leave and sometimes long-service leave, needs to be paid out on termination of the employment.

Finally, on a sobering note, according to our recent Business Conditions Survey about 27 per cent of AED businesses believe they are at high risk of failure when supports such as JobKeeper, tax relief, interest waivers, and other measures end. To what extent these fears will be realised is still yet to be seen.

If you require help to ensure your business can continue to operate successfully and into the future, contact Management for Design. By helping you to run your practice efficiently, and enabling you to plan effectively, we free up your time to focus on what you do best — building your business and creating great work.


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