Managing your Balance Sheet Post COVID-19 Stimulus

Based on market research and general feedback from the community, a number of industries within the Australian economy are showing promising signs of recovery.  However, uncertainty is being faced by all organisations relying on the government stimulus packages, with not long until the end of the JobKeeper scheme, other stimulus measures, and the end to the moratorium on insolvency and debt enforcement laws.

Now that most organisations have implemented business continuity plans, stabilised their operations and are experiencing recovery, planning for the post stimulus period now needs to be the priority.

To date, many organisations have elected to defer the payment of liabilities as they seek to preserve cash reserves in the short term.  As a result, these businesses are carrying significant liabilities that will require a plan to settle that also ensures underlying business operations are not impacted.  Planning, scenario analysis and cash flow forecasting should be elevated as Owners, Directors and Executive teams deal with the next phase of steering the organisation through the COVID-19 scenario.

To help with your cash flow forecasting, you should consider:

  • Minimum/realistic revenue levels – using current trading levels as indicators of future performance;
  • Statutory liabilities – in our experience being early to negotiate payment arrangements could lead to more favourable outcomes, don’t wait;
  • Other deferred liabilities – as normal operations return, the settlement of deferred rental and other arrangements with creditors, these will need to be factored into the return to ‘normal’; and
  • Workforce requirements – there exists a cost scenario that needs to be considered but our advice is that you focus on productivity in your teams and how this should be maximised against revenues and costs.

Should you be interested in external input and a review of your planning and operations, our friends at 888X have experience and frameworks that could be advantageous to avail yourself of at this time of extreme uncertainty.

To make contact with the 888X team, reach out to them at contact@888x.com.au

To find out more on improving your immediate cash flow, be sure to get in touch with us today to discuss how ScotPac can help.

SME Growth Index Insight Series – Pandemic puts spotlight on new ways to fund SMEs

SME Growth Index results indicate some business owners have already changed their business funding behaviour in response to the pandemic, and others are looking to change.

As outlined in Insight 1, small businesses have flagged their intentions to work with multiple funders (increasingly non-bank lenders) and to consider changing their existing funder.

One in 12 SMEs has already added non-bank funding facilities to deal with the impact of the COVID-19 shutdown. A further one in eight small businesses plan to add non-bank funding facilities to cope with their cash flow needs in 2021.

Trend to non-bank lenders

There’s been a surge in the proportion of SMEs who plan to use a non-bank to fund their new business investment through to April 2021.

Small businesses are now almost twice as likely to fund their new investment using a non-bank rather than their main bank.

Intention to fund new growth using a non-bank reached an all-time high of 27.4%, as SMEs actively diversified their funding base to navigate the aftermath of COVID-19.

Main bank funding of new SME investment is now at its lowest (17.4%), down from 22.6% in H2 2018 and from the high of 38.4% in the first round of the Index in 2014.

SME intention to fund growth by drawing a loan from a secondary bank stands at 13.1%.

The popularity of non-bank funding amongst growth businesses has doubled since 2018 (then, 11.9% planned to fund growth using non-banks, now this figure is 22.6%).

Fewer SMEs looking to invest

Only around half the SMEs polled have plans to fund growth over the next six months (650 out of the 1252 businesses polled).

This is a significant drop from H1 2020, when 752 SMEs planned to invest in business growth. It does not quite match the record low of H2 2016, when only 614 SMEs planned to invest.

The fact that fewer SMEs are looking to invest in their business should be a concern for the sector, especially when it would be best practice for larger turnover SMEs to be making funding decisions much further ahead than six months.

Nine out of 10 of the SMEs planning to invest will fund business investment using their own funds or equity; this is up from an average of 84% over the previous three rounds. Reliance on equity to grow the business has been a constant over the six-year history of the Index.

The next most popular ways for SMEs to fund new business investment were to use non-bank lenders (27.4% of respondents) and to source new equity to fund business demands (21.4%).

Top funding frustrations

Nine out of ten SMEs reported having frustrations about funding their business, and perennial SME funding pain points remain the biggest concern.

The top three frustrations were loan conditions (84.3%), having to provide property security (79.8%) and lack of flexibility (74%), all of which ticked up slightly compared to 18 months ago.

COVID-specific response options were added this round, and some very clear frustrations were highlighted. Two thirds of SMEs (64.5%) were concerned about a lack of a clear recovery path post-pandemic.

Almost half (47%) encountered difficulty accessing government guaranteed loans during COVID-19. Nearly a quarter (22.6%) reported frustrations that online lenders were charging high rates.

The SME frustration that recorded the biggest proportional increase this year was that funders were hard to deal with (an issue for 55.8% of small businesses, compared to 46.8% 18 months ago).

There has also been a significant increase in this pandemic year of SMEs showing frustration that their funders can’t meet all their needs (21.8%, up from 16.1%).

More than a quarter of small businesses (26.6%) don’t feel secure with their lender, pinpointing the need for clear communication and good ongoing relationships with funders.

Those SMEs with non-bank borrowing rather than bank finance report fewer frustrations about:

  • Loan conditions (91.4% of bank borrowers frustrated, compared to 6.7% of non-bank borrowers)
  • Providing property security (93.4% versus 67.4%)
  • Lack of flexibility (97% against 50.6%)
  • Funder is too hard to deal with (72.2% against 39.3%)

Paying down debt

Given SMEs named paying down debt as their top priority for 2021 and given many of the federal stimulus measures which helped prop up the national economy meant SMEs taking on more debt, it’s worth looking at the SME debt landscape.

Historic Index data shows a very large proportion of small businesses use easy access debt (such as personal credit cards or their own funds) to access working capital for their enterprises.

Perhaps the post-pandemic period provides an opportunity for SMEs to make the tough decisions in their business and find better ways to fund them.

2021 is not a time to kick the can further down the road: SMEs need to find ways to unlock capital within the business to ease cashflow issues that can be crippling even in good times let alone during a recession.

It’s probable that the Federal Government’s stimulus, while necessary overall, has artificially propped up many businesses.

Now is not the time for business owners to shy away from tough conversations. Those who do may be in the cohort of Index respondents who end up having to close or sell without significant improvement in business conditions.

In many ways the onus is now on each small business and their advisors – don’t wait until the stimulus is off the table, get on the front foot and make decisions before it’s forced on you.

SME Growth Index Insight Series – Rebounding from COVID-19: towards 2021

Top factors to help SMEs rebound

SMEs were asked to name the top three factors they think are required in order for the small business sector to rebound from the COVID-19 recession.

Having open borders was the top factor, by a significant margin.

Almost two-thirds of SMEs (63.8%) felt this way, and on this issue there was minimal variance exhibited by state, business size or industry sector.

The second most popular factor to help SMEs rebound was for the Federal Government to legislate 30-day payment terms. This initiative, named by 46.4% of small businesses, has been championed throughout 2020 by ASBFEO’s Kate Carnell.

While the Federal Government’s Payment Times Reporting Bill 2020 has passed both houses of parliament and requires large businesses (> $100 million) to submit a biannual report on their small-business payment terms and practices, the Small Business Ombudsman has stated she would like to see this taken further.

The Ombudsman has called for legislation requiring SMEs to be paid in 30 days as “the only way to drive meaningful cultural change in business payment performance across the economy”, and SME Growth Index results confirm this measure would be popular with the small business sector.

Small business sector eyes insolvency reform

SMEs had strong views on how to recover from the recession, with many respondents writing in their own suggestions rather than relying on survey response options. The most popular write-in was:

  • 2% of SMEs independently nominated that extending insolvency relief laws would be a key element for steering the sector through an as yet undefined COVID recovery period.

How the Federal Government legislates on insolvency will be crucial. The Reserve Bank has warned of a wave of business failures once temporary insolvency relief measures end (at the time of writing, set for December 31 2020). These relief measures, such as increasing the threshold at which creditors can instigate bankruptcy proceedings and protecting directors from personal liability for trading while insolvent, were set to expire in September. They have already been extended to the end of 2020 and the government is considering further reforms that would allow businesses with liabilities under $1 million to keep trading while they develop a debt restructuring plan within 20 business days.

One in four SMEs (25.1%) expressed – of their own accord – firm support for a more federal approach to the pandemic, advocating for reduced power of the states. This is primarily a call for open borders.

Almost one in four small businesses (22.4%) also want greater clarity from the government on stimulus timings; 15.3% want easier access to government spending or contracts and procurement processes, an area recently targeted for pandemic recovery action by the NSW Government.

A voucher system allowing small businesses to seek professional business advice, an initiative suggested by ASBFEO and the major accounting bodies, was named a top recovery factor by just 3.2% of respondents.

Key challenges and top three positives for 2021

The top three hurdles SMEs feel they must overcome in 2021 are servicing excessive debt levels (22.1%), securing or increasing their customer base (16.1%) and diversifying their funding base/finding new sources of funding (16%).

Avoiding insolvency was named as the greatest challenge by 11%;  7.7% listed retaining staff and current headcount; 7.5% will focus on removing unnecessary costs, especially ingrained fixed costs.

Around one in 20 are concerned that continued uncertainty around border closures will be their main challenge.

When asked what they are most positive about for 2021, the most common response was getting “back in the black” (24.2%), coupled with the corresponding factor of reducing debt levels (20.7% wrote in this response).

Almost one in five small businesses (17%) plan to relocate or enter new domestic markets.

One in ten are most positive about retraining or upskilling staff and a similar number (8.8%) pointed to choosing to ‘right size’ and sell non-core assets in order to be ‘leaner and meaner’ post-COVID.

As to innovation and expansion, 6.4% of SMEs are most positive about their plans to release new products and services, 5.9% about entering new international markets and 4.7% about making strategic changes to create a new path for their business.

When the data was cut by business age, it was revealed newer businesses are more likely to be grappling with staff issues and scaling up, to be planning to improve productivity and looking to do more with less.

Younger businesses (under 12.5 years) were much more likely to express positivity than their older SME counterparts about entering new domestic or international markets and releasing new products or services. This may be due to a view that if they can ride out 2020 they can survive anything, whereas older businesses may be more conservative and keeping their focus on dropping debt.

Established SMEs seem to be shouldering significant debt burden and were more looking forward to reducing debt levels (24%, compared to 16.4% of younger businesses).

A response variance to highlight is that established SMEs were much more likely to have strategic planning in place.

This, along with the result showing SMEs either have made or are considering a change in direction about their pre-pandemic funding arrangements, highlights the importance of small businesses seeking qualified, expert advice. The results indicate that SMEs need to be making hard decisions about business structure, strategy and funding for 2021 and beyond.

“Act early to secure funding”: cashflow pressure warning for directors & their advisors, as new insolvency rules come into play

It is important that small businesses and their advisors are alert to the cashflow impact of the new insolvency laws that come into play from January 1.

Directors and their advisors are encouraged to act immediately so they don’t risk trading insolvent when the legislation takes effect, and don’t exacerbate existing cash flow problems, according to national SME funder ScotPac.

ScotPac senior executive Craig Michie said small businesses who may have to restructure in 2021 would be wise to put in place arrangements that secure the working capital they’ll need to deal with tighter supplier credit terms, a likely flow-on effect of the restructuring model.

Restructuring will create cashflow tensions

Mr Michie said securing funding will be a key requirement of the streamlined SME restructuring process that after December 31 replaces “COVID Safe Harbour” insolvency rules (which during the pandemic year absolved directors of personal liability if their businesses traded while insolvent).

Under the new rules, from January 1 SMEs with liabilities under $1 million, and who are up to date with their tax lodgements and up to date with employee entitlements that are due and payable such as wages and superannuation, can work with an expert to restructure. Under this new system owners are able to stay in charge of running the business while experts (the new Small Business Restructuring Advisors) work on a turnaround plan to put to creditors.

“It’s important for directors and their advisors to know they can lodge with ASIC an intent to enter into the new arrangement within three months. This effectively safeguards them from the implications of trading insolvently while the arrangement is put in place,” Mr Michie said.

“However, the obvious cashflow challenge with this arrangement is that suppliers become aware of the intent and withdraw credit altogether or apply “cash on delivery” terms.

“Accessing the cash tied up in an unencumbered receivables ledger that generates cash to bridge this gap is a logical step for small business directors and their advisors to consider.”

Many directors unaware of impact of new rules

There is likely to be a surge of businesses experiencing difficulties and requiring turnaround funding in the first half of 2021, especially once government stimulus measures such as JobKeeper end and protective measures around statutory demands and winding up petitions are withdrawn.

Hall Chadwick Insolvency & Reconstruction partner Blair Pleash said businesses can be restructured formally (Voluntary Administration or creditors voluntary winding up) or may be eligible for the new debtor-in-possession model which opens up restructuring to SMEs for whom VA costs would be too prohibitive.

“There are a lot of businesses affected by COVID who in early 2020 could not imagine they would be in this scenario. We are dealing with a new cohort of directors who had never contemplated insolvency and they need considered advice – sooner rather than later,” Mr Pleash said.

“Directors should review their position as soon as possible as there is a lot in play – once support and protection measures are withdrawn, will they have sufficient cashflow? If not, they need to consider restructuring.”

Mr Pleash said most SME directors are not fully aware that cash flow problems may be exacerbated by taking up the new restructuring option unless they can access sufficient funding throughout the restructuring process and into the future.

The cash flow squeeze that could happen under the new debtor-in-possession rules may make a struggling SMEs’ cashflow situation even worse unless they take steps to address the issue, he said. This may include putting in place financial products such as invoice finance.

“Get the right advice and have the tough conversations as soon as possible about restructuring and the funding it will require, because dealing with it early gives you more options,” he said.

Funding suitable to restructure a business

ScotPac’s Craig Michie said the ATO, banks, landlords and suppliers are going to be able to take more direct enforcement action from January 1 2021 when pre-COVID rules are restored.

Mr Michie said directors and their advisors must be aware of the option of accessing their accounts receivables to solve not only their original cashflow concerns but also the cashflow issues caused by the restructuring process.

“It’s important for insolvency practitioners, accountants, brokers and others who advise SMEs to be aware of the lending options available to small businesses as they undertake restructuring.

“Funding that is fast and without red tape will be crucial as these restructuring plans are put in place. This is where funding products such as invoice finance will be in demand, ensuring that businesses undergoing restructuring have adequate cashflow to see them through.

“Even if a small business is not at the crisis point now, taking action now or early in the new year to get in place this style of funding means it is ready to draw down from, if and when the need arises.

“There are funding products available where the business is only charged when they draw down. It makes sense to have such a facility in place so it can be accessed quickly if required,” Mr Michie said.

ScotPac’s FactorONE product is a lending solution suited for this environment, providing access to funds within 48 hours, and a low-document application process, with no property security required.

There is also the aspect of scale – unlike many small business funders, ScotPac has the ability to lend higher limits (over $2 million) to businesses that meet the criteria, along with the trust and reliability that comes with ScotPac having funded the Australian small business sector for more than 30 years.

“Advisors have an important role to play in helping their small business clients get the right funding in place now so they can move swiftly if they need to restructure in 2021. Having systems in place now will give them the best chance of turnaround success,” Mr Michie said.

ScotPac is Australia and New Zealand’s largest non-bank SME lender, and for more than 30 years has helped thousands of business owners with the working capital they need to succeed. ScotPac lends to small, medium and large businesses from start-ups to enterprises with revenues of more than $1 billion.

For more information contact:
Kathryn Britt
Director, Cicero Communications
kathryn@cicero.net.au
0414 661 616

SME Growth Index Insight Series – Reliance on trusted advisors grew in 2020

In what has been a chaotic and confusing year, more than half the SMEs polled (53.4%) said they have relied more on their key advisor (such as their accountant or broker) since the pandemic began.

On average, these small businesses approached their key advisor 13.3 times per quarter.

This compares to 31.2% of SMEs who approached their key advisors at the same frequency as before COVID-19 struck (on average 4.4 times each quarter).

Only one in 10 ‘went their own way’ and didn’t seek out external advice, with very small cohort of SMEs (4.5%) relying less on their key advisors than they did before the pandemic.

Of those SMEs who sought advice from trusted advisors, such as their accountant, broker, bookkeeper or business specialist, eight in 10 (82.4%) reported that this external business advice had a positive impact.

The top five positive impacts that advisors had on their small business clients were:

  • Reducing costs (63.4%), to help improve their bottom line
  • Helping SMEs access government support and stimulus measures (36.8%)
  • Providing confidence about the direction the business was taking (28.1%)
  • Helping improve customer relationships (18.5%)
  • Accessing funding (18.1%)

Around one in 10 SMEs used their trusted advisors for support in negotiating debt relief arrangements with the Australian Tax Office. It is notable that previous SME Growth Index findings have indicated that many small businesses are using the ATO as a “last resort lender” by not paying their debts when they fall due. It is also worth noting that a growing number of businesses are being impacted by ATO debt and the leniency that has been showed in 2020 during the pandemic will not last forever.

Around 8.6% of SME respondents said they had success in using their trusted advisors to help guide their sale of assets.

One in 10 SMEs did not seek specialist advice during the pandemic. When asked why, their most common response was they simply do not have enough time in the day (40.4% gave this response). Oher key reasons for not seeking external business advice were “not needing it” (21.3%) or “cost of advice too prohibitive” (17.6%).

Key role for advisors in 2021

SME Growth Index research in March this year found the SME sector as a whole seems reluctant to move  beyond tax and end of financial year activities when it comes to what they seek from their accountants.

A minority of SMEs were using accountants for value-add areas including funding option advice (only 46.8% of SMEs turn to their accountant for this), strategy and planning (31%), advice on selling business assets (17%), cash flow management (16.1%) and major acquisitions (14.3%).

Given the complex SME environment created by the pandemic, this may not be a wise choice for the small business sector.

For example, one of the government stimulus initiatives was to significantly expand accelerated depreciation deductions (the Instant Asset Write-off) – however some accountants have been warning SMEs not to get caught out, saying they need to fully understand the tax implications for each business before implementing such deductions.

On this and many other issues, including how SMEs should fund their business, there is a real and important role for accountants to guide their small business clients.

Accountants, brokers and bookkeepers crucial for SME funding

Accountants, brokers and book-keepers are well positioned to advise their small business clients on which funding options suit their individual business situation. In fact, March 2020 SME Growth Index research found almost five out of 10 SMEs are already using accountants to help them with funding options, and four out of 10 already use their brokers to source new finance.

Around a third of small businesses rely on their accountant’s or broker’s advice when they are making decisions about how to fund the business. It will be interesting to track whether the exceptional circumstances of 2020, along with SMEs’ flagged intentions of looking closely at the method and provider they use to fund their business, prompts more SMEs to rely on such professionals for funding guidance.

Cash flow management will be more important than ever in steering SMEs through the pandemic aftermath. A year ago, only 16% of SMEs reported using their accountant to help with cash flow management, so there is much room for improvement here.

Because it’s so important for businesses to be aware of the broad range of funding options available to them, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) partnered with ScotPac to create the Business Funding Guide (for accountants, book-keepers, brokers and other key SME advisors) and its companion FitsME Guide (for business owners). The free downloadable guide aims to help SMEs and their advisors navigate the broad range of funding options, including and beyond traditional bank products.

SME Growth Index Insight Series – Resilient SMEs outline revenue expectations

Six-month revenue projections forecast by Australia’s SMEs highlight the sector’s resilience.

Despite fewer than one in 20 Victorian small businesses envisaging revenue growth, Western Australia’s forecasts held up strongly, NSW expectations were not really dampened by the pandemic and Queensland remains reasonably buoyant.

All things considered, SME Growth Index 2021 revenue forecasts for SMEs were less “doom and gloom” than might be expected, although this round of research did record a lowest ever all-respondent positive growth average of +0.1%.

This round also recorded the widest range of positive growth forecasts and the tightest range of negative growth forecasts.

In the midst of Australia’s first recession in 30 years, only 47% of small businesses are expecting revenue growth. Almost three in 10 SMEs forecast unchanged revenue, with around a quarter forecasting a revenue drop through to April 2021. These results mark a record low number of SMEs with positive revenue growth aspirations, the previous low being 48.4% in H2 2017.

Perhaps more surprisingly, the number of SMEs forecasting a revenue decline has moved only one percentage point, to 23.8%, since the last research round in March 2020, despite an immensely challenging past six months for the small business sector.

The SME Growth Index support the premise that targeted government stimulus measures such as JobKeeper have created scaffolding for those SMEs who were already facing the greatest financial difficulty.

It is the other end of the spectrum – high growth SMEs – who have had their revenue expectations reined in by the pandemic. Those expecting revenue to grow are forecasting an +3.3% average result, with the widest ever range reported (+1.0% to +8.8%).

Those expecting their revenue to fall are forecasting an average -6.2% revenue decrease.

Three out of 10 SMEs (29.2%) forecast no change in enterprise revenue over the coming six months, marking a record high proportion of “no change” SMEs above the previous peak of 28.1% in H2 2017.

SMEs’ perception of their own business phase clearly reveals where the pandemic has negatively impacted sentiment. For the first time ever, there are more SMEs self-identifying as being in a stable business phase (33.6%) compared to those in an outright growth phase (32.2%).

One in 10 businesses are in consolidation phase, similar to last round; one in 10 are start-ups and 13.3% identify as declining – a record high above the historical peak of 12.3% in H1 2018.

It will be interesting to see whether this round’s SME revenue forecast was kept artificially high because the Federal Government’s stimulus measures were still in place, with many SMEs able to “keep the lights on” but showing lukewarm enthusiasm about investing significantly in their businesses.

Mainland state revenue expectations

The SME Growth Index found massive variance in revenue forecasts by state and it is likely that this will create an uneven recovery nationally.

NSW:
57% of SMEs expect positive growth
13.5% negative growth
29.5% no change

VIC:
4.6% positive growth
69.1% negative growth
26.3% no change

QLD:
42.7% positive growth
8.9% negative growth
48.4% no change

WA:
80.7% positive growth
3.5% negative growth
15.8% no change

SA/NT:
76.3% positive growth
11.3% negative growth
12.5% no change

It must be noted that SME respondents were polled during September and early October 2020 – a time when Victoria was operating under one of the strictest COVID-19 lockdowns in the world.

The growth expectations of Victorian business owners may quickly improve with the continued easing of restrictions.

Those few Victorian SMEs (4.6%) predicting positive growth expect to bounce back well, with an average 12% revenue growth forecast. But the seven out of 10 Victorian SMEs expecting revenue decline have forecast an 8% average decline.

Two-speed economy on show

Of the major industries analysed for the SME Growth Index the mining sector has been relatively unscathed and is most optimistic for the future. The transport industry also shows optimism.

 

Mining:
87.9% expect positive growth (average growth forecast of 8%)
7.7% forecast a decline (by on average -0.6%)

Transport:
60.2% expect positive growth (3.4% average)
12.2% expecting revenue decline (-2.1% average)

Manufacturing:
37.1% forecast positive growth (of just 1.2%)
29.3% expecting decline (-3.8% average)

Wholesale:
37% expect positive growth (average of 2% growth)
31.5% expecting revenue decline (average -2.5%).

Retail:
33.5% forecast positive growth (of 1.7% on average)
38.7% expecting revenue decline (by a more substantial -4.9%)

It is notable that the retail SME sector is very evenly split between those expecting revenue to grow, decline or remain steady.

These statistics tell a story consistent with separate ScotPac conducted for five months from April to October 2020. This working capital research, across key industry sectors, found that business turnover remained stable during the pandemic, supported by various payment deferral programs and government stimulus initiatives.

With insolvencies down 60% compared to the previous year, businesses were drawing down less money from their funding facilities, and instead many were using the cash harvested from government initiatives to keep their businesses running.

During this five-month period, businesses were paying their peers more quickly – average payment times dropped from 52 to 49 days from April to October.

In October, for the first month since July, Victorian SMEs reported improvement in sales volume across all the key industries analysed.

Transport has been the big winner from COVID-19 due to a surge in e-commence; in Victoria, ScotPac’s working capital research recorded  an increase in sales for the transport sector, with a boom in online shopping during the state’s prolonged to stage 4 restrictions.

Manufacturing and wholesale industries saw an immediate impact in sales volume at the start of the pandemic, with signs of recovery during June and July followed by another decline in August and September during Victoria’s stage 4 lockdown.

Previous rounds of the Index highlighted the fact that SME revenue growth targets were precarious, as shown by the range of forecasts expanding and more and more forecasts at the extremes of positive and negative. A summer of bushfires followed by the pandemic pushed many over the edge.

Fortunately, SMEs have weathered what they believe is the worst of the crisis and are now preparing for “COVID normal” as current trading conditions appear here to stay for the short to medium term.

Ayonz goes from cash-strapped to an engine of growth with Trade Finance

A flexible Trade Finance facility has given Sydney business Ayonz the security and cash-flow to grow during COVID-19 at a time when many other import-export entities have stalled.

Amid a global pandemic that has wreaked havoc on international supply chains, consumer lifestyle products supplier Ayonz has just kept on growing.

The business specialises in home appliance and technology brands that are sold in retail outlets, through resellers and via online shopping channels.

Director Ziad Yaacoub says COVID-19 has accelerated the growth of Ayonz’s online customer base, in particular, as people seek online access to products. Given people’s inability to travel domestically and overseas, they have spent a large proportion of their discretionary finances on televisions, ovens, refrigerators and audio systems.

“Household appliances is one of the biggest categories that has benefited through COVID-19,” Ziad says. “We work with European and Japanese brands to bring in stylish, innovative, quality products at a value proposition. That’s what has led to our growth and continuous success.”

Family affair

Launched in 2016, Ayonz is a family business that prides itself on being different to its competitors.

The Ayonz team, operating out of its Sydney headquarters and with regional offices around the world, focuses on customised brand selection, introducing overseas brands to new local markets and expanding existing brands into new categories.

Ziad says existing suppliers in the market have become “stale”, while customers have been “screaming” for better products and service. Among Ayonz’s product line is Blaupunkt (electronics), Brooklyn (audio products), EKO (TVs and audio products), Germanica (home appliances) Seiki Svision (home appliances) and Urbanworx (technology and kitchen appliances).

The key for Ayonz is being involved in every stage of a customer’s journey – from the initial tailored product design and purchase of goods through to after-sales support and servicing.
“From day one we set out for the company to be an extension of our customers’ businesses where we deliver complete solutions,” Ziad says.

Formidable partnership

Strong ties with reputable manufacturers that count the likes of Electrolux and Samsung among their clients has given Ayonz an import edge during the pandemic as it has sought to manage gaps in supplies because of international border closures and freight disruptions.

“We’re not relying on shipments to come out of Europe where it can take five to eight weeks.”

Ziad says the flexibility and security of a Trade Finance facility with ScotPac has also been crucial. The facility increases Ayonz’s international purchasing power, allows the business to easily buy more stock and increase revenue, and comes with an Invoice Finance facility that helps cover cash-flow gaps for up to 180 days. It also locks in foreign exchange to take advantage of favourable currency rates. The facility complements Ayonz’s Invoice Finance facility, which funds sales invoices as soon as they are raised. A dedicated ScotPac finance portal has also brought additional accounting rigour to the business’s operations.

“We’ve found that ScotPac’s offer suits us perfectly, as if it was made for our business,” Ziad says. “It’s enabled us to react very quickly to market forces.”

In 2017, with sales rising and Ayonz struggling to keep up with 30 per cent year-on year growth, the management team turned to ScotPac on the recommendation of a finance broker for assistance in managing cash-flow, in particular.

“They came on board and quickly had a good understanding of our business model,” Ziad says.

The upshot is that Ayonz went from being cash-strapped to an engine of growth.

Crucially, Ziad says having the backing of ScotPac has allowed the business to ramp up import orders, safe in the knowledge that sufficient cash will be in reserve.

“The facility has enabled us to plan for consistent shipments to meet our customers’ requirements, without being affected by any unforeseen delays from factories or from shipping lines. ScotPac pays the factories once products are on board. So it reduces risks and financial costs that we would have had to endure if there were any delays while stock is still sitting in factories.”

Ziad says the arrangement provides real peace of mind.

“Because of ScotPac we’ve been able to go to our customers and accept orders that we initially didn’t plan on accepting. They’ve backed us and said ‘yes, we can support those orders’ and we have gone ahead with them.”

Strong supply chains

The Ayonz management team is continually improving its supply-chain management and supplier development processes to serve customers.

Great customer service has also held Ayonz in good stead. Ziad says fast deliveries, prompt responses to consumer queries and clever use of social media platforms has been a key element of Ayonz’s growth. For example, Facebook chats for customers who want instant access to information have been part of a pledge to provide quick technical support.

“Consumers have adopted social media and so have we. We’ve made social media not just about marketing but to assist customers with their queries.”

With Ayonz’s post-pandemic future looking strong, Ziad is confident the partnership with ScotPac will continue to thrive. He has been impressed with ScotPac’s diligence and attention to detail.

“They understand our challenges and their people are skilful in understanding our industry and that has helped us and them. I think 2021 is going to be a bigger and better year for both entities.”

Ziad has no doubt that ScotPac brings surety and peace of mind for Ayon’s international trading partners.

“It just gives a level of comfort to our suppliers and factories when they see a respected financial acting on behalf of a company like ours. It gives us scale and it gives us scope and adds to the professionalism that we portray.”

SME Growth Index Insight Series – SME Plans: Closing, selling, looking beyond JobKeeper

Almost one in three SMEs (31%) indicate that without a significant improvement in trading conditions they may sell or close their business – some immediately, the majority plan to make this decision within three to six months.

This is a stark picture, due to the impact of the COVID-19 recession. However, it’s important to note that the SME Growth Index research took place over a four-week period in September and October, when Victoria was still in lockdown.

So this statistic gives a point-in-time view and is not necessarily a “doom and gloom scenario”, given that trading conditions in November have been improving.

It does, however, serve as a stark indication of the precarious position and potential pain for the small business sector if there was another major state lockdown or significant border closures.

East & Partners Head of Markets Analysis Martin Smith said the one in three SMEs looking to sell or close their business without significant improvement equated to approximately 88,000 businesses around Australia in the $1-20m annual revenue bracket, with about 50,000 of these businesses looking to sell and more than 37,000 looking to close.

The results indicate that the smaller the business, the more severe the impact of the pandemic on their long-term strategic objectives and solvency.

Two out of every five smaller sized SMEs ($1-5m turnover) say they are looking to sell or close by April 2021 unless conditions markedly improve.

Almost one in four larger SMEs ($5-20m turnover) are in the same boat.

Only half (54%) of all the small businesses polled say they are not looking to sell or close due to the impact of the pandemic.

Closing or selling – industry breakdown

There is significant variance by major industry sector: retail has been hardest hit, with manufacturing and wholesale SMEs also heavily impacted. Transport and business services have been resilient, while small businesses in the mining sector have been relatively unaffected.
This indicates a K-shaped recovery taking place, where different sectors recover at different rates, and this is likely to continue until a widely effective vaccine is found and a vaccination program is in place.

  • Only 9% of retailers polled are definitely not making plans to close or sell if conditions don’t improve dramatically. More than one in three (34.2%) say they may close, with a similar proportion (31%) planning to sell and almost as many (25.8%) were unsure of what they’d do.
  • For manufacturing SMEs, without significant improvement 17.1% would be looking to close, 24.4% to sell, with 18% unsure.
  • Transport sector SMEs indicated 3.1% would look to close, 9.2% to sell, with 14.3% unsure.
  • Nine out of 10 mining SMEs indicated they would continue in their business even if conditions did not significantly improve.
  • A quarter of wholesale businesses were looking to sell, with one in 8 looking to close and a similar proportion unsure of their next steps.

Closing or selling – major state variance

Western Australia and Queensland, who have been under some political pressure for their strict border controls, are home to the small business sectors most confident about not having to close or sell their business.

  • For Queensland SMEs, 68.9% felt that even if conditions didn’t significantly improve they would carry on, with only 7.6% saying they could close and 14.7% considering selling.
  • For WA, 71.9% of SMEs were confident about staying on, with 5.8% eying closure and 14.6% looking to sell.
  • Victoria, hardest hit, was the only state where more than half its SMEs (53.7%) were looking to sell or close – 29.5% listed closing, with 24.2% looking to sell, making Victoria also the only state with a higher sell than close percentage. Only 20% of this state’s SMEs had no plans to sell or close. Victoria had 26.3% of SMEs unsure of what they’d do: two to three times the rate of indecision found in the other states.
  • NSW small businesses are much more confident – only 8.8% flagged closing, 18.9% selling and 60.1% had no plans to do either.
  • NB – the cohort of South Australian SMEs was too small to allow for meaningful state breakdown on this question.

COVID-19 and stimulus impact on SME borrowing

This round, the SME Growth Index looked at the impact of the pandemic on SME borrowing demand.

More than half the SME sector (56.4%) experienced no significant change in borrowing demand. This figure was split evenly between those who said they relied on government stimulus (28.4%) and those who didn’t require the stimulus (28%).

One in five SMEs reported their funding needs increased in the short-term, with a further 6.6% preparing for an indefinite increase in credit demand.

Only one in 10 SMEs had decreased borrowing demand as a direct result of the pandemic.

SMEs in the midst of the COVID crisis were looking for new answers to perennial funding problems. During the pandemic, one in 12 small businesses (7.7%) added non-bank funding facilities to deal with the impact of the COVID-19 shutdown and subsequent supply chain and revenue issues.

What happens after March 2021?

Business owners were asked what funding adjustments they’d make in response to stimulus measures ending in Q1 2021.

The results point to a significant shakeup within Australia’s small business funding sector.

Nearly two thirds of SMEs (61.8%) are planning to reassess the way they fund their business.

Almost a quarter (22.8%) also plan to reassess their actual funding provider. This was more marked in the $5-20m SME category (31.9% looking to reassess provider) compared to the smaller $1-5m revenue SMEs (14.8%).

It is also notable that 12.3% of SMEs plan to add non-bank funding facilities to cope with their cash flow needs once all the projected Federal Government stimulus initiatives end.

For 2021, small businesses are more likely to pull back on their borrowings than to increase. One in four SMEs (24.1%) will ‘throttle back’ by decreasing borrowings, with 17.6% looking to increase borrowings.

A key concern is that 40.6% of smaller SMEs (in the $1-5m revenue bracket) have no idea how they are going to fund their business for the next six months.

They are either unsure specifically how they will adapt or are unable to plan that far ahead.

Given that more than a quarter of SME respondents indicated they were covered by the stimulus, it’s important to consider what impact its withdrawal will have between now and when JobKeeper finally ends in late March 2021.

The ATO forgoing debt this year has been “another style of stimulus”, but they have signalled they will start to enforce compliance.
The financial hit for the SME sector resulting from the pandemic highlights the importance of finding the right funding to unlock working capital (see ASBFEO and ScotPac’s Business Funding Guide).

There’s an old saying “never let a crisis go to waste” and this is a message that small business owners should take seriously as there is a clear opportunity for SMEs to get ahead of the danger.

The COVID-19 crisis is a call to action for SMEs to talk to professional advisors and make the hard decisions about their business – how viable it is, what happens when ATO debts are enforced and other debts fall due, how to deal with the end of JobKeeper and making the time and effort to find the best way to fund the business.

One Big Happy Family as Invoice Financing Deal Drives Tool Sales

A tool manufacturing business built on three generations of family dedication has hit new heights through strong hardware store sales and backed by a reliable source of funding.

A proud family business has built a reputation over more than 50 years as a trusted toolmaking manufacturer. With such a long history, it’s notable that in the past three years revenue has doubled. The “X” factor? Steady cashflow that comes from using a confidential funding arrangement with ScotPac.

Trading off hard-won status as a supplier of quality do-it-yourself and trade products, the enterprise signed a deal in 2017 to sell through Bunnings hardware stores. The move has seen the business, which has succeeded during three generations of family ownership, record its best results.

“We’ve doubled our business,” says family spokeswoman Carly*.

 

Strong sales and cash flow

While Bunnings sales have been a crucial driver of recent growth, including during the COVID-19 crisis when DIY projects soared, a second factor cannot be underestimated.

In 2018, the toolmaker discovered a reliable form of non-bank funding through a partnership with ScotPac that has unlocked opportunities, freed up cashflow and let the business shift away from bank loans that tied up family members’ personal property assets as security.

ScotPac’s confidential Invoice Financing facility acts as an on-demand and flexible line of credit secured by one or more outstanding sales invoices. This smart choice to leverage the value of the business’s strong receivables’ ledger has been a game-changer, converting invoices into a fast source of cashflow.

While the business had tried one other non-bank financing solution, Carly says it came with penalties for faster invoice payments. “We compared that with the ScotPac offer and it was just a no-brainer.”

The business felt that its long history and attention to accounting detail meant that it would be a good client for ScotPac, too. “We manage our debtors well and I’m sure ScotPac could see that we’re a well-organised business, so we represent a low risk to them.”

A constant flow of invoices through Bunnings and its parent company, Wesfarmers, also gave ScotPac the confidence to back its operations.

 

Right products at the right price

The business was set up in the late 1960s and a rebranding initiative about two decades ago first paved the way for a more focused and profitable enterprise.

It now supplies a range of reliable and affordable tools for both DIY enthusiasts and professional tradies, packaged and labelled to make it easier for customers to select the appropriate product for a job.

The family’s management team has always targeted continuous improvement, which is why it was open to adopting a new form of funding through ScotPac. “It’s been great for growth because as soon as you make a sale you can tap into the funds,” Carly says.

Adding to the mix has been a smooth onboarding and ongoing education process with ScotPac personnel providing on-site training and support as required. “They show you how the system works, and we’ve always had one relationship manager who knows our account and can sort things out if an issue pops up.”

 

All systems go

At the heart of the partnership with ScotPac has been clarity and regular communication about systems, processes and costs.

“When you’re dealing with a bank it’s usually very slow and cumbersome and there are lots of layers of bureaucracy,” Carly says. “We’ve found dealing with ScotPac much easier.”

Flexibility of funding has made a real difference. For example, as tool sales rose quickly on the back of a surge of DIY projects during COVID-19, the business knew it could negotiate increases to its facility limit with ScotPac, which has more than 30 years of experience lending exclusively to SMEs.

“It’s really good working with a partner who understands our business,” she says. “If and when we put more products into Bunnings or other retailers, we can go to ScotPac and tell them that we’re going to need more funding.”

That has been in contrast to former funding arrangements with major banks. “We had two bad experiences with big banks and it’s so refreshing to deal with a non-bank. With ScotPac, they understand their clients and can tailor a solution that meets our needs.”

Maximising business value

With the Bunnings alliance bedded down and funding secured through ScotPac, the toolmaker is confident that it can build on five decades of success and keep expanding.

“I just really see the business going onwards and upwards,” Carly says. “We just want to keep growing and becoming more efficient. Having strong cashflow because of ScotPac means we can have the products on the shelf ready to go.”

*This client story profiles a business that uses a confidential funding facility with ScotPac, so names have been changed for confidentiality.

NSW Budget payroll tax relief for SMEs welcomed

MEDIA RELEASE
November 17, 2020

Call for all states to provide payroll tax relief

Small businesses will welcome the NSW Government’s budget move today to provide payroll tax relief, as this is one of the biggest growth-blockers for the sector according to Australasia’s largest specialist funder of SMEs.

ScotPac CEO Jon Sutton welcomed New South Wales’ move to increase the payroll tax threshold to $1.2 million, up from $1 million, and encouraged other states to look at their payroll tax regimes.

Mr Sutton said coordinated action by all states to reduce or remove payroll tax would have a big impact in aiding a 2021 recovery for small businesses across Australia.
“Simplifying the complex national tax system, getting rid of state payroll taxes and cutting red tape nationally would have the biggest daily impact for Australia’s small to medium business sector,” he said.

“Our SME Growth Index surveys the small business sector across Australia twice a year, and business owners always list high taxes and confusing, multiple taxes as a significant barrier to growth.”

The NSW payroll tax move has been touted by NSW Treasurer Dominic Perrottet as a tax cut for thousands of businesses to encourage job creation, and includes a decrease in the payroll tax rate. It follows their already-announced initiative to provide a four-year payroll tax-free period for businesses that create at least 30 new net jobs.

For more information contact:
Kathryn Britt
Director, Cicero Communications
kathryn@cicero.net.au
0414 661 616