5 September 2022

How do Australian SMEs navigate stormy seas?



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Robust cash management and forecasting are critical tools to enable SME leaders to prepare and remain vigilant.
Australia Strategy
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Amid the stormy seas of economic uncertainty, SMEs must be able to pivot ahead of emerging challenges to survive.

The COVID-19 pandemic gave rise to an economic typhoon that many businesses have found difficult to endure. Underpinned by government policy at State and Federal level, key stakeholders, including financiers and the Australian Taxation Office, have provided significant support to SMEs during this time. However, as the economic recovery from the pandemic continues and these mechanisms of support subside, the preparedness of SMEs to emerge and thrive is at question. Business leaders who used this time wisely to address their balance sheets will be in a strong position. However, those that have relied solely on external support to stay afloat will remain vulnerable to present and emerging pressures flowing from challenging economic conditions both domestically and abroad.

A raft of economic stimulus packages driving spending in parallel to global supply chain constraints that continue to be impaired by the COVID-19 pandemic and geopolitical events in Europe and Asia1 are the key contributors to significant inflationary pressures in these conditions. As a result, SMEs continue to face daily operational and financial challenges. Labour shortages and a war for talent have led to commensurate wage pressures across many sectors (including challenging enterprise agreement negotiations made harder by generous government increases).2 The energy supply crisis is a further example of cost-based pressure where the full brunt is being felt by SMEs struggling to compete. These are complex and challenging issues that will take some time to settle and the operating environment in the interim will remain uncertain.

Robust cash management and forecasting are critical tools to enable SME leaders to prepare and remain vigilant in this setting. In our experience, many SMEs place emphasis on the former but not enough (or none) on the latter. Those focusing primarily, or solely, on cash management are merely treading water. A diversified approach prepares SME leaders to identify potential icebergs ahead and allow adequate time to plan and consult with key stakeholders on how to navigate these obstacles. SMEs that can demonstrate strong and reliable cash management and forecasting and be in a position to engage early where issues emerge are far more likely to attract willing support from key stakeholders (in particular financiers) as this will generally inspire greater trust in the capability of leadership.

The Australian Taxation Office ('ATO') has, until very recently, been largely passive and amenable in assisting taxpayers (including SMEs) in its approach to debt management of tax arrears through the COVID-19 pandemic. However, with May's Federal Election now well astern, there is increasing evidence that the winds have changed. The ATO's changing approach in managing a reported total debt of $61.4 billion (as at the end of December 2021) and collectable debt $39.9 billion3 will be felt directly by SMEs, which typically account for around 60% of this debt (circa $24 billion). Across all tax types, small business also represented almost half (circa $15 billion) of the ATO's estimated $33 billion gap in Australian tax (and superannuation) performance.4

Signalling the change, the ATO has recently written to around 70,000 businesses to highlight the key powers it intends to leverage in shifting its approach to debt collection. These include the potential for disclosure of business tax debt to credit reporting agencies in circumstances where the business taxpayer meets certain criteria, including where tax arrears of $100,000 or more in excess of 90 days exists and the taxpayer is not engaging with the ATO5.

The ATO is also increasing (and is expected to continue increasing) its use of Director Penalty Notices (DPNs) in its pursuit of unpaid GST, PAYG and, most notably, superannuation guarantee charge (SGC) arrears. This should be of particular concern to directors and other leaders of SME's which hold arrears of this nature as DPNs can place personal liability on directors for these amounts.

SMEs and their directors can no longer rely upon critical stakeholders (particularly the ATO) to be as accommodating as has been the case during the COVID-19 pandemic. Emerging from the pandemic storm, SMEs that failed to adequately plan and prepare risk running headfirst into further unchartered and turbulent seas. Robust cash management and forecasting are crucial to sheeting the sails for SMEs and allowing leaders to be nimble in their response to potential shocks and crises in their operating environments.


1 Reserve Bank of Australia, Statement on Monetary Policy – August 2022 (Overview) (4 August 2022); Andrew Atkinson and Celia Bergin, UK inflation hits double digits for first time in 40 years (17 August 2022) Australian Financial Review

2Ronald Mizen and David Marin-Guzman, Private sector wage increases big, but not big enough (17 August 2022) Australian Financial Review

3 Michael Bleby, ATO's ticking time bomb of unpaid construction tax bills (16 February 2022)

4 Jeremy Hirschhorn, Second Commissioner Client Engagement Group, 'The practitioner's experience: The latest from the ATO' (Remarks delivered to CPA Australia's Public Practice Retreat, 19 May 2022)

5 Treasury Laws Amendments (2019 Tax Integrity and Other Measures No.1) Act 2019 (95 of 2019) (Cth) sch 5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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