The coronavirus pandemic has devastated the Australian economy and been detrimental to workers, employers and business owners. As a result of Government restrictions, unemployment has risen and the short-term future remains largely uncertain. On the face of it, it may seem like a bad time to start your own business. However, the current economic climate presents an opportunity for those who are willing to seize it, as we’ve seen with many businesses in 2020.
As the year progressed and the economy reopened, we saw a gradual financial recovery start to take shape. In spite of unparalleled challenges, many big things happened for businesses in 2020. From the largest ASX listing by a female co-founder to a more than 50% increase in the number of companies being started in Australia from May to June this year. In this sense, the pandemic created opportunities for budding business owners to get creative. Employees who spent more time at home (due to working remotely or redundancy) had time to get their ideas off the ground.
Going into 2021, many of these opportunities and incentives will continue to exist and in fact may be strengthened. This article will explain some of the reasons that lead to the creation of new small businesses in 2020, and why entrepreneurs have a good reason to be optimistic about 2021.
Starting a new business can seem daunting in tumultuous economic times. Trying to establish a brand, store or service within an established market place can be difficult. To help ease the transition period, making use of the government and market based incentives is critical. These incentives have helped to pave the way for new businesses created in the wake of the pandemic. Many of these are still available to people looking to start their own businesses going forward.
In response to the pandemic, federal and state governments have put in place a number of schemes designed to assist small businesses and also incentivise people to start their own. These incentives are often significant and can facilitate the creation of a small business in a comprehensive way. They address a wide range of concerns including but not limited to wages, access to credit and loss carry back.
Wage Subsidies (JobKeeper and JobMaker)
This incentive provides a financial incentive to employers to hire and retain eligible jobseekers in ongoing and sustainable positions. Introduced earlier this year, businesses in 2020 needed financial support to keep employees on the books whilst they were closed.
- Availability: JobKeeper will expire at the end of March 2021, JobMaker is ongoing
- Amount: Up to $10,000
- What kind of business?: All Australian businesses
- Eligibility criteria: have an ABN, hire an eligible jobseeker for an ongoing position, have not previously received a wage subsidy for the same person, offer a job that is an average of 20 hours per week over 6 months.
Credit support scheme
The government is looking to give small business owners a sense of stability by making it easier to access credit.
- This makes it easier to purchase working capital, and businesses are able to secure loans up to $1million dollars.
- Unsecured or secured loans
- Available until 30 June 2021.
- Lenders are exempt from responsible lending obligations until the end of the year. This gives small businesses a better chance at securing access to the capital they need to start up their businesses.
RBA Monetary Policy
The Reserve Bank of Australia has slashed interest rates to historic low rates (0.1%). This has been done in order to stimulate the economy and to encourage lending. The RBA is also engaging a bond buying scheme which lowers the cost of financing for all borrowers in Australia. Governor Phillip Lowe has said that “people should not expect the cash rate to go up again for three years.”
Backing Business Investment
- A 15 month investment incentive to support business investment and economic growth over the short term, by accelerating depreciation deductions.
- This applies to eligible assets acquired from 12 March 2020 and first used or installed by 30 June 2021.
Rural Financial Counselling
The government has set aside funding to provide small regional businesses with access to free financial counselling. Businesses which are eligible must:
- Have 19 employees or less.
- Be located within a regional area.
- The Australian government runs the Clean Energy Finance Corp (CEFC) which aims to facilitate increased flows of finance into the clean energy sector. It targets clean energy and also energy efficiency improvements for small businesses. Each state and territory is offering financial incentives to firms to lessen their environmental impact and improve their long-term sustainability.
- The NSW government is offering discounts for new appliances and equipment that reduce energy use.
- The Queensland government has programs designed to help businesses save energy and adopt energy efficient practices.
- The South Australian government is implementing programs to reduce energy and water consumption to lower operating costs and greenhouse gas emissions.
- The Victorian government is helping businesses to reduce energy and find ways for businesses to become environmentally sustainable. Their solutions include Sustainability Victoria and the Victorian Energy Saver website.
Company asset write-offs
The instant asset write-off threshold has been increased until the end of 2020. As a result, businesses have greater cash flow and enables them to immediately deduct purchases of assets up to $150,000.
Loss carry back
The most recent federal budget has supported small businesses in 2020 by allowing them to claim a refundable tax offset if they have previously paid corporate taxes and subsequently made taxable losses.
Changes to corporate insolvency laws
The government has changed the insolvency framework to assist small businesses. The main changes are:
- The statutory demand limit to recover debts has increased to $20,000 (from $5,000)
- The time limit to respond to statutory demands has increased to 6 months from 21 days
Outside of artificially created programs, the COVID-19 pandemic has created a set of market based incentives for small businesses to be created.
The COVID-19 pandemic has resulted in a growing demand for locally produced goods and services. Using local goods and services is generally associated with small businesses. This leaves them best placed to capitalise on this growing demand.
The growing penetration of digital marketing makes it easier for small businesses in 2020 to advertise efficiently (and cheaply). Thus, the ability to target market segments online is revolutionising advertising for small businesses, allowing them to maximise their potential.
The increasing concerns over the environmental impact of corporations may turn consumers away from large multinational companies which tend to have large carbon footprints. As a result, Local and sustainable businesses are profiting off this new class of environmentally conscious consumers. This is a segment of the market that is going to continue to grow going forward.
The Labour Market
The pandemic has resulted in high unemployment and difficulty in finding jobs. For instance, it is common for a single job to have hundreds of applicants. That then combines with growing uncertainty about the future of the labour market and what skills are needed to succeed going forward.
Job losses are severe all over Australia, and are leaving people looking for what comes next. There was a 33.1% yearly change in unemployment and 28% of people aged 18-24 lost their jobs. Jobs that would have seemed ‘future proof’ and secure have also been threatened and made insecure by the onset of the pandemic. Therefore, the unemployment crisis could potentially remain an issue for years to come. Additionally, the shift towards a service based economy within Australia is being accelerated by the pandemic, and the resulting recession.
This situation has led to people trying to start their own businesses as a circuit breaker. The pandemic has particularly affected young people’s ability to gain employment and led them to starting their own businesses instead of following traditional career paths. Going forward, many people may find the freedom and control of owning your own business the best way to navigate a difficult job market.
The pandemic is not the only crisis that we face, and it has acted to exacerbate some of the ones which have plagued our communities for years, such as homelessness, climate change and healthcare. Social impact firms are companies which prioritise goals which combat community issues. Social impact firms are important as they are using for-profit business models and turning them sustainable, leading to a snowball effect.
Therefore, there is a growing desire to start small businesses as a vehicle for social impact. The demand for companies that are sustainable is growing amongst Australia. This has coupled with the trend of corporate responsibility which has taken hold amongst the largest companies around the world. Social impact firms can capitalise on the increasing number of socially conscious consumers. Investment into these firms is increasing, with many venture capital funds and investors purposefully seeking out social impact firms to invest in. The most successful social impact firms are able to solve consumer problems while contributing to a solution. Developing a business model with this goal in mind has already proven to be extremely valuable, and is likely to inspire more small businesses and start-ups going forward.
If you are trying to start your own small business, it is important to understand the various legal challenges associated with it. In order to give your business the best chance for success, we recommend using the resources available at Lawpath.