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September cliff: Flood of insolvencies expected when JobKeeper ends

Published: (Updated: ) in Australian News by .

Business owners who are struggling with cash flow are being urged to balance their books now while there is still time.

Insolvency experts are expecting a flood of businesses to collapse when the Government's stimulus packages end in September.

Referred to by some economists as the "September cliff", business owners who are struggling with cash flow are being urged to balance their books now while there is still time.

Recent Australian Bureau of Statistics (ABS) figures show that 72 per cent of businesses took a hit to revenue as a result of COVID-19.

READ MORE: Worst year on record for Aussie retailers

A further 73 per cent of businesses accepted support measures – such as the JobKeeper program or deferred loan repayments – to defer sacking workers.

Bill Lang, executive director of Small Business Australia, told a vast array of businesses have been heavily impacted by measures that either totally or partially shut their doors.

"I think you'll find it's more than one sixth of businesses that are potentially facing insolvency, which means they can't pay the debts that they've got," Mr Lang said.

"A good industry for example is learn to swim lessons.

"They're just starting to open up now but there is some concern with parents about going back and for the business owners, they've effectively gone three months without customers."

Andrew Spring, partner at insolvency firm Jirsch Sutherland, told that government support measures were like the stake holding up a sapling – once removed, there's no telling whether small businesses would be able to grow on their own or wither and die.

"We don't have a crystal ball to know, but I liken it to a dam wall. The dam's been built but generally speaking you've got to release the pressure when it rains, and the rain is still falling," said Mr Spring.

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"When Government stimulus ends, the dam is removed and everything downstream is going to be affected. There's going to be a flood."

Mr Spring urged business owners who believe they may be facing insolvency when programs like JobKeeper end to be proactive about the strengths and weaknesses of their business.

"We're experiencing an economic event that's both macro and micro in nature and company directors need to be proactive about assessing the impact on their business and the changes required to get back on the right course," Mr Spring said.

"That includes getting your accounts in order, meeting taxation and superannuation obligations and, if necessary, seeking professional help from a qualified adviser."

Coffee shop sign on the Northern Beaches of Sydney

A part of that, explains Mr Spring, is removing the stigma some business owners feel when they engage the insolvency process.

"You shouldn't walk around with her head held low because you've gone through an insolvency process," Mr Spring said.

"In actual fact I think those people should be encouraged because it takes a lot of intestinal fortitude to say I'm going to have a go.

"If it does happen to go bad, most of the time it's not because of a lack of effort, it's just that something didn't click with the business."

For Mr Lang, the loss of small businesses not only impacts their owners, but the wider community in which they operate.

"When these small businesses go, it's a significant loss not just to the economy but to the community," Mr Lang said.

"Think about when you were young – when you had work experience in high school you most likely did that at a small business.

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"When you were in uni and had a part time job it was most likely in local small business. Who is sponsoring the local trivia night and the prizes at the footy club? Local small business.

"Over and above the economic side of things it's the community that suffers if these small businesses close."

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Source: 9News

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