What Morrison’s stimulus packages mean for startups, and survival tips for those who can’t apply

With so many coronavirus announcements for SMEs, you could be left wondering where your startup sits. What support can you get and what can you do to survive the crisis?

Because we need you to. If ever there was a time for the passion and power of startups, surely it would be now. So to all the founders out there, here’s the lowdown on the stimulus measures, plus some essential tips to help you through.

Early-stage pre-revenue startups

If you’re an early-stage pre-revenue startup without paid employees, there’s not a whole lot in the federal and state government stimulus packages for you.

But don’t lose heart. Now’s the time to double down on what the world needs more of: inventive, creative solutions and fast, agile executions.

I loved reading a story about an Italian 3D-printing business adapting snorkelling masks into a hacked version of respirators, helping to fill the shortage of the life-saving equipment. 

Closer to home, Spacecube has turned its cancelled Grand Prix contract into an opportunity to provide pop-up medical clinics to keep suspected COVID-19 patients separate from others.

That said, here are the main stimulus-related measures that might be useful for you.

The extended R&D tax incentive deadline.

It’s now September 30, 2020, for the 2018-19 financial year. (And on this subject, prepare your 2019-20 R&D claim too so you can get the cashback as soon as possible after June 30.)

The possibility of financing your R&D tax refund to get it in advance.

This isn’t new, but it’s well worth being aware of as a cash lifeline.

Bank leniency.

The banks are offering a bunch of concessions, including increasing overdraft facilities and deferring loan and overdraft repayments. It’s good to see an appetite for leniency here and do call them to find out your options. But remember, it’s only shifting the problem because you’ll have to pay it back eventually

Government-backed bank loans.

We’re still waiting for the details on this, but the federal government has announced it’ll provide a 50% guarantee to support banks lending to SMEs (and we think that can include startups).

Instant asset write-off increase.

You can buy an eligible new or used asset worth up to $150,000 (previously $30,000 per asset) before June 30, 2020, and treat it as an instant tax write-off. For the 2020-21 financial year, you can also deduct an extra 50% of an asset cost in the year it was bought. Like the banks, approach this one with caution. It’s only worthwhile if you really need (and can ultimately afford) an asset.

There are also some important things you can do to maintain your focus and help your startup get through this crisis (scroll down to the essential section).

Startups with paid employees

If you have paid employees, more of the stimulus measures should apply to you.

The federal government’s JobKeeper payment of $1,500 fortnightly per employee.

This is for up to six months and can apply to full-time, part-time, long-term casual and even stood-down employees. When first announced, it looked like many startups mightn’t be able to access this, but the details have been updated, and could be eligible if you show a 30% drop in turnover relative to a comparable period a year ago or a forecast drop. The latest information shows the ATO will apply its discretion to startups who struggle to meet the exact criteria. In general, it sounds like the government is making an effort to recognise startups here. To access this, register here for updates. That’s all you can do at this time. Payments are expected to start the first week of May and can be backdated to March 30, 2020. 

The Federal Government is also providing cashflow support between $20,000 and $100,000 (total).

You’re eligible if revenue is under $50 million and you employ staff between January 1 and June 30 this year. The amount will be calculated against the PAYG Withholding tax you pay for staff in the Jan-Mar, Apr-Jun and Jul-Sep periods. If eligible, you don’t need to do anything differently. The money should turn up in your account within 14 days of lodging your activity statements for those periods. 

Most state governments have included a payroll tax support measure in their stimulus packages.

This ranges from refunding the payroll tax you’ve already paid (in Victoria only), to waiving payroll tax for a period, deferring it and increasing the threshold for when a business has to pay. Access a state-by-state guide here, or contact the revenue office in your state for the details. 

These measures might also help.

• Bank leniency. As mentioned above, the banks are offering loan and overdraft repayment deferrals and better terms so call your bank to discuss options. The federal government is also going to guarantee bank loans for SMEs (the details are unclear at the moment but we think this can include startups).
• ATO hardship assistance. Like the banks, the ATO is being unusually lenient. Call its emergency support line on 1800 806 218 to discuss your situation and options.
• More leniency to trade out of trouble. The rules around responding to creditors and trading while insolvent have been temporarily relaxed. This means directors aren’t personally liable for trading while insolvent at the moment.
• R&D tax funding. The 2018-19 deadline has been extended to September 30, 2020, and you should start preparing for your 2019-20 claim too (if eligible). As always, there’s the possibility of R&D tax financing, which means getting a loan against your expected R&D refund.
• Asset write-off increase. As mentioned above, this has been increased to $150,000 per eligible new or used asset (up from $30,000) until June 30, 2020. For FY 2020-21, you can also deduct an extra 50% of an asset cost in the year it was bought.

Essentials for startups right now

Running a startup can be hard enough without a global pandemic, but in many ways, you were built for this with the essential founder attributes of working lean and keen. 

The key to harnessing those strengths is to stay focused amid the noise and turmoil. Here are some survival tips to help you do that. 

• Do a financial recce. In other words, take stock of your financial position. How much cash do you have? How long will it last? Are you owed any money (and how likely is it to be paid)? 
• Keep the team together (while apart). You’ll already be using some tools for this, but one you mightn’t have heard of is miro.
• Focus on your core. Consider what you don’t need to be doing right now, which will help you cut costs too.
• Think carefully about your staff. If you have to look at reducing staffing costs, consider ways around it to maintain morale and keep your team (you’ll need them to bounce out of this). We’ve seen entire companies take a 25-30% pay cut rather than lay off people. We’ve also seen good use of employee share schemes to offset pay cuts.
• Update your cash forecast. If you don’t have one, build one.
• Plan for the worst (but hope for the best). Push yourself to think through scenarios over the next two years, including those that cut more deeply than you’d like. Include clear trigger points for action and what that looks like.

Remember that in such uncertain times, fluidity is essential so any views you form or plans you make are likely to change. 

Can you raise capital in a crisis?

Well, it’s not an outright no. At least not yet, bearing in mind that in other crises, such as the GFC and the dot com bust, it took three to four quarters for capital to dry up. And once the crisis had subsided, it took about a year for capital to start flowing again afterwards.

So if you have plans to raise capital, don’t muck around. Many venture capital funds have recently completed their own fundraising, so there is money to invest for the time being. Be aware that investors will likely be looking for more favourable valuations, and considering smaller interim rounds of capital to reduce risk.

If you’ve already got investors, you’re probably in a stronger position because they’ll want to see you survive. As Benjamin Chong from Right Click Capital says, there’s a good chance they’ll be up for follow-on investment in their portfolio companies. Don’t muck around with this either. If you haven’t already, send them a COVID-19 update showing how you’re looking after your team and customers plus an early indication of your funding needs.

Great startups will be born

Hell yes, they will. It’s really helpful to remember that great companies have been born in periods of adversity or survived them very early on in their infancy, including Atlassian, Envato and Campaign Monitor in Australia. 

So while you need to plan for the worst so you can act when you need to, it’s also vital to stay positive and look for opportunities, including pivoting. The trick might just be imagining what the future looks like and helping us all get there. 

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