How boutiques can respond to the latest economic stimulus
Fiscal support for SMEs help them navigate COVID-19, but boutique law firms will also have to roll up their sleeves to get through the pandemic, says one professional.
Reflecting on the economic stimulus announced by the federal government thus far in response to the coronavirus pandemic, businessDEPOT managing director John Knight said that the two measures that are most relevant for boutique law firms are the cash flow boost payment and the ability to access superannuation early (for those who don’t employ others).
“There’s also an option to borrow money partly guaranteed by the government but this will be delivered via the banks and we are awaiting more information on how this will work,” he added.
The cash flow boost payments, ranging between $20,000 and $100,000, are the “main stimulus measure” targeting small businesses, Mr Knight explained.
“[However] the criteria for eligibility works off whether or not your firm pay[s] wages and deducts tax from those wages. So unfortunately, if you do not (and have not historically) paid wages to others or to yourself, you will not be eligible for the cash flow boost (based on our interpretation of the information at today’s date,” he said.
“I don’t think this is in line with the overarching objectives of the support/stimulus package and so we expect something else to come out to support the self-employed who do not pay themselves wages and instead have taken dividends or drawings.”
With regard to super, Mr Knight said that self-employed professionals will be able to access up to $10,000 from their retirement nest egg to help them get through the turbulence.
“A key eligibility criteria to do this is if your income has been impacted by 20 per cent or more. You will then have a second opportunity to access another $10,000 in the 2020/21 financial year,” he noted.
However, whilst such stimulus will help boutique firms, it alone will not be enough to navigate the choppy waters ahead, Mr Knight warned.
“We can only make decisions at the moment based on what we do know for certain, not what is uncertain… and what we do know is no one knows how long this is going to last and how long this is going to impact your business,” he advised.
“Use the cash flow boost amount and if necessary, access your super to give yourself some room to move. Use your cash wisely though, you cannot afford to have any waste whatsoever in your business at the moment.”
What will not work for boutiques, Mr Knight said is “burying your head in the sand and not doing anything”.
“You now need to know the numbers in your business more than ever,” he proclaimed.
“Depending on the type of legal services you provide, the drop in income could be instant, it could [be] huge or it could be minor. But, if you continue to incur costs with reduced income coming into the business, everyone can only last so long. Work out the length of the runway you have based on the cash available for you to access and reduce the burn rate on the way through as much as possible.”
Being innovative, Mr Knight suggested, could be a good way to thrive in this period.
“We have some great innovation coming out of businesses that are under pressure. People have come up with new service offerings, new payment arrangements, new delivery methods to enable trading to continue,” he mused.
“One thing I am confident of, is that during the tough times innovative firms will thrive once we come out of this ‘blip’. How we work may never be the same again! Online meetings may become the new norm, flexible learning will be more and more effective and the use of technology just [the] standard.”
Perhaps more important, Mr Knight stressed, is that the interpretation of economic announcements, as well as the frequency of them, is rapidly changing, and as a result, all boutique firms and business leaders need to ensure they are staying up to date with the latest developments.