What small business needs to avoid wipe-out

As lockdown restrictions start to ease, the challenges have actually increased for hundreds of thousands of small businesses. Experts have revealed what the sector needs to avoid disaster.

• Virus delivers $60b blow to Aussie economy
• What we really think of working from home

Australia could lose several hundred thousand small businesses as a result of the COVID-19 pandemic, the CEO of the Council of Small Business Organisations Australia has warned.

Peter Strong told News Corp that the post-GFC effect wiped out 200,000 existing businesses and 100,000 new ventures in 2009/2010 alone, which “gives an indication of what we might be looking at” as the pandemic smashes the Australian economy.

“We could be looking at a couple of hundred thousand businesses that won’t be reopening,” he said.

Small Business and Family Enterprise Obudsman Kate Carnell said it was “impossible to say” how many businesses would fail in 2020, or which industry sectors would be most affected, but in normal times about half of all small businesses lasted more than three years.

“From what we understand there will be a range of businesses that will not reopen, simply because they can’t afford to,” she said.

“We’ve spoken to lot of businesses. We don’t have a clear figure but they’re saying ‘I just don’t want to get into more debt’.’”

An Australian Chamber of Commerce and Industry member survey in late April found almost three quarters of small businesses experienced a 25 per cent drop in revenue since the start of the lockdown.

That figure is expected to be even higher in the Chamber’s May survey data, released this week.

Modelling by Deloitte Access Economics found there would be almost $60 billion in lost income in the Australian economy between the start of April and the end of July – and as small businesses (those with between 0 and 19 workers) employ more than half of the workforce, they could bear more than half of that expected hit.

Kate Carnell, Small Business and Family Enterprise Ombudsman.

Council of Small Business Organisations Australia CEO Peter Strong. Picture: AAP Image/Mick Tsikas

Research work by Bastion Insights has revealed just how dire things have become for small enterprises.

Of the 424 small business owners and 890 sole traders who have participated in the group’s weekly surveys during the virus period, 49 per cent of sole traders and 40 per cent of small businesses say they are working less and earning less. Just under a third of these people have eaten into their personal savings to stay afloat.

And the businesses opening back up now as restrictions ease face a new raft of difficulties, Ms Carnell said.

“The challenge for small business is always cash flow. That’s 100 per cent above everything else, and the dilemma for small businesses in the reopening phase is whether they can generate the cash that they need to balance the staff that they need to reopen. It’s a real balancing act.”

The Jobkeeper subsidy would assist keeping businesses afloat until September 28, but the government should develop a “phase out plan” for the scheme, Ms Carnell said.

“There will be a group of businesses that will struggle, and I think we need a plan of phase out. I’m talking about beyond September,” she said.

Governments should also be using their purchasing power to buy from small business – and not just for small contracts, she added.

The rules around social distancing would also be a continuing problem for many small businesses, Mr Strong warned.

“You can’t have a consumer walking into a shop that says four people only, making it five, and then a regulator fines the business or closes it down, when it’s the consumer that's caused that problem,” he said.

“The businesses have got to follow the rules, but so do employees, and so do consumers. We’re all part of this.”

The prospect of a spike in transmissions prompting future lockdowns could kill off more businesses – particularly those with perishable stock, Mr Strong said.

“To close down again would be very difficult for a lot of business people; you’d find they wouldn’t reopen again,” he said.

The small business sector would be looking to governments for “really clear guidelines” from government around the need for any future lockdowns, Ms Carnell said.

“Business survives on confidence, particularly small business, so we have got to give them confidence that they can plan in terms of reopening and a capacity to keep trading,” she said. “If we don’t manage that there will be more businesses that will close.

“They will just reckon it’s not worth the risk, not worth the hassles, and that is not in anyone’s best interest, especially all of the people who work for them.”

Originally published as What small business needs to avoid wipe-out