As our country locks down and migrates indoors to flatten the curve, our consumer-based economy is suffering. We could be heading into a worldwide COVID-19 recession with the Australian Bureau of Statistics (ABS) expecting more than 80% of Australian businesses to be adversely impacted before the end of April.
That’s 80% of businesses impacted in the first four months of a crisis that could last anywhere from six to eighteen months with the economic downturn possibly continuing beyond that. It is this uncertainty that makes implementing business strategies a long-term challenge, with many of the businesses experiencing a decline in sales and future concerns on cashflow, redundancies and potential closures.
So, what can you do to ensure your company thrives and not just survives in the following months?
Re-purpose products and services
First, businesses can repurpose their products and services to meet the changing market. We’re sure you’ve already seen some examples in the last month as distilleries start to manufacture sanitiser, cafes and restaurants provide meal prep and rideshare services deliver goods instead of people.
Re-purposing focuses on assessing and re-aligning your business’s purpose with the customer’s altered needs, although this may not be a viable option for everyone (and tax implications need to be considered). Questions you should ask yourself include:
- Who was your original target market?
- How has this pandemic changed their needs?
- How can you alter your products and services to match this change or how can you provide a new product or service offering?
Invest and innovate
For businesses that cannot re-purpose and are experiencing a decline in customers, decreasing cash burn and cutting operational costs is a logical next step; decrease your overhead costs and wait out the crisis. However, research into the Great Recession suggests that heavily cutting operational costs and making staff redundant can lead to a decrease in product quality and staff morale. Where possible, companies could instead be evaluating their productivity and supply chains to drive permanent efficiencies into their processes, ones that will last beyond this crisis, and looking to invest in land, equipment and innovation while prices are low. Understandably companies may be concerned about future cash flow issues, so it is not surprising that many would halt investments and research and development (R&D) programs. However, history has taught us that continuing to invest in innovation during the Great Recession may have allowed companies to outperform competitors and prosper as the economy recovered.
Consider eligibility for R&D Tax Incentive rebates and/or R&D Financing
Companies should consider their eligibility for the R&D Tax Incentive to fund eligible activities that they undertake to innovate, to reduce costs, improve efficiencies and/or repurpose to see them through the COVID-19 crisis. The R&D Tax Incentive can provide a funding lifeline by providing a cash rebate of up to 43.5 cents for every dollar spent on R&D under certain circumstances.
However for companies that don’t have the accessible funds / cash flow to invest over the next few months, there are several funding options available to assist you, including R&D financing, and other government incentives. R&D financing is an easy way to fund R&D activities, as it provides a mechanism for eligible companies to access R&D tax incentive benefits in advance, within the year in which the eligible expenses are incurred. This form of finance is essentially a loan that uses the future receivable as collateral. To be eligible for R&D tax incentive finance, a company must first be eligible to receive the R&D tax incentive (which is to be assessed by a reputable R&D advisor). William Buck is an approved partner of the R&D lender, Fundsquire who can help your company investigate if this type of funding is right for you.
While it’s hard to be certain at this point, it’s unlikely that the COVID-19 pandemic will reach the length and severity of the Great Recession and the government is lining up million and billion-dollar schemes to ensure that businesses don’t collapse during this time. For more comprehensive analysis on the government schemes you can visit our COVID-19 Resource Centre or contact us for a business solution tailored to your needs.
The next six months are uncertain, but you don’t have to face that uncertainty alone. Please reach out to us on any of the points above and we’ll do all we can to assist you. If you would like some advice on claiming or maximising your R&D tax incentive, contact our R&D Team on (03) 8823 6840 or if you’re interested in understanding how R&D financing can provide cash refunds quicker, contact Brendan Bennett of Fundsquire on 0409 406 966.