It’s no secret running a small business is not easy. Managing cash flow, staff and the paperwork are daily frustrations for small business owners whose time would be better spent looking for new customers and chasing innovations to keep up with their competitors.
Treasurer Scott Morrison’s 2018 federal budget aims to “keep backing business to invest and create more jobs, especially small and medium sized business”.
Governments have good reason to prioritise the needs of small business. Small business is the barometer of the health of the wider economy. It’s vibrant, diverse and incredibly responsive to policy settings and economic headwinds.
Close followers of politics and the business tax system will find little to surprise them in this year’s budget because many of the announcements are extensions of existing policies.
Tax relief measures — like the 12-month extension of the $20,000 instant asset write off to 1 July 2019 and 10-year enterprise plan to reduce the company tax cut for large as well as small business — are good news for the small business sector.
Our data shows thousands of small businesses have claimed motor vehicles, plant and equipment, business technology and other tangible assets under the instant asset write off.
One of our small business customers Thalia Kemp started her bespoke video and sound editing company Sonic Edits, as a way of generating a job for herself. A few years in, it’s finally getting to break even point. The introduction of accelerated depreciation has been huge for her because she’s been able to ditch her old computer hardware and software that put her at a competitive disadvantage, to buy the latest technology that allows to compete against rivals here, and overseas.
It’s measures like this that can help small businesses compete with the big guys. It would make sense for this measure, first introduced in 2015, to become a permanent fixture so small businesses can have more certainty in their investment plans.
There’s no question tax incentives help cash-strapped businesses.
Our data shows the first tranche of the federal government’s company tax cut plan — introduced in 2015 for businesses with turnover under $2 million — had a direct impact on jobs and investment.
The average company received about a $2,900 tax cut, according to an analysis by economics firm AlphaBeta using Xero’s small business insights. About half of the eligible companies held on to the cash, in fact many of them did not realise they had even received it which highlights the need to inform small businesses of their options.
About 19 per cent of the tax cuts helped pay for new staff, 27 per cent helped lift investment and 3 per cent used it to boost wages.
But tax cuts are just part of the story for small businesses. A tax cut doesn’t make much difference for small businesses struggling to make a profit, or business owners who feel they are drowning in red tape or are unable to find ready and skilled workers.
Small businesses employ about 45 per cent of Australian workers but our data shows only 50 per cent of small businesses are cash flow positive. Cash flow remains the top priority for small business and, as a nation, we need to think creatively about how small business owners can get better access to capital to keep running their businesses.
Too many small businesses rely on their personal credit cards to finance their businesses. A healthy competitive finance sector is key if small businesses to have affordable, accessible sources of funding. In his Budget night speech, the Treasurer noted that while there will be more penalties and action on misconduct in the finance sector, Australia will continue to pursue an “open banking” regime.
We can expect to hear more about open banking which aims to give consumers control of their banking data and could mean better funding options for small business.
Those nuggets of help
There are other small nuggets to be found throughout the Budget papers and signposts to future potential small business policies that will likely be unveiled as we head into an election year.
Business owners will get a $10,000 incentive to hire older workers who will also get more help to reskill and there’ll be an extra $250 million for the Skilling Australia Fund which aims to support apprenticeships and training in high-demand jobs.
There’s also $20 million for SME Export Hubs to “ foster greater cooperation between Australian businesses, helping them grow as they work together to sell their products to the world” and an extra $500,000 for a response to the Small Business Digital Taskforce.
No doubt there’ll be more details about both of these in coming months. Like our customer Thalia Kemp, Australian small businesses are using technology to compete globally, even against large international businesses.
Small businesses can fill the gaps that big business just can’t. Small business owners can move quickly to take advantage of opportunities such as access to high-speed broadband, to dominating the care sector in regional markets thanks to the national roll-out of the NDIS — as revealed in the 2018 budget — a massive investment in at-home aged care.
Initiatives like the $24.5 billion infrastructure package on roads and rails could be another boom for regional construction businesses, but only if small businesses are given the opportunity to compete and participate with big business.
Australia needs its two million small businesses to survive, grow and prosper for the good of the nation. Our data shows small businesses with good cash flows are quicker to hire new workers. Imagine if every small business in Australia was able to employ an extra person — that’s two million new jobs.
This is why we need to take note of real-time data to give an early and accurate diagnosis on the state of small businesses. The Australian Taxation Office will get extra resources in the 2018 budget to track the real-time flow of money through Australian businesses.
So it makes sense we should also closely monitor the impact of policy changes — yes, including tax cuts and business incentives — to ensure they are worthwhile. It’s never been more important for small businesses — whether it’s a cafe in inner-city Melbourne or a cane farm in north Queensland — to have a cohesive voice to tell governments when things are going wrong, but also when they are going right.
Trent Innes is the managing director of Xero Australia.
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