Thinking | 8 May 2020
In the midst of a global pandemic, it is certainly not 'business as usual' for startups.
For some, particularly those in the technology and digital commerce sectors, COVID-19 has proven to be an opportunity for growth by providing solutions to problems and demands which have arisen as a result of people being at home.
For others, the pandemic has been detrimental to both their business and balance sheet as the global market faces economic uncertainty and corporate and consumer spending falls.
The pandemic has brought about other financial challenges for startups. Attracting investment, which has always been a challenge, is becoming increasingly difficult. Changes to the FIRB regime, which have reduced the screening threshold, is also having an impact on attracting foreign investment.
Valuations of startups will have changed and founders may not be able to attract the level of funding that they could have a few months ago.
Both the Federal and State Governments have announced a raft of COVID-19 stimulus programs to help businesses during this time. Where possible, founders should look to access these programs to support their startup to weather the pandemic and stay afloat.
- Accelerating Commercialisation: The Accelerating Commercialisation program provides small and medium businesses, entrepreneurs and researchers with access to expert advice and funding to help get a novel product, process or service to market. Successful applicants will receive expert advice and up to $1 million in matched project funding.
- Boosting Female Founders Initiative: The program provides funding for female founded startups to launch and scale their businesses into domestic and global markets. Grants of between $25,000 and $480,000 are available to successful applicants. Applications for Round 1 of the program have now closed, however the program will run until 2023.
- JobKeeper: If turnover has been reduced due to the coronavirus pandemic, startups may be eligible to receive $1,500 a fortnight for each eligible employee. Eligible employees are full time and part time staff of the business as at 1 March 2020, or casual staff who have worked for over 12 months. Founders may also be personally eligible for the JobKeeper payment if they are self-employed.
- Cash flow support: Temporary cash flow support of up to $100,000 may be made available to start ups. Eligible small and medium sized business that employ staff will be provided with cash flow boosts (with the first delivered on 28 April 2020) by way of credits in the activity statement system.
- Increase to instant asset write off: The Federal Government has increased the instant asset write-off threshold to $150,000 for assets that are either installed or ready for first use by 30 June 2020.
- Accelerated depreciation deduction arrangements: Businesses are able to deduct 50% of the cost of an eligible asset on installation with existing depreciation rules applying to the balance of the asset's costs.
- SME Guarantee Scheme: If required to meet your immediate cash flow needs, the Federal Government will provide a guarantee of 50% to small and medium enterprise lenders to support new short-term unsecured loans to be used as working capital for your business.
Founders should be closely monitoring their cash flow position to ensure that their startup has sufficient cash reserves to get through this period.
Startups may find that they need to adapt their offering in order to attract or retain customers as the pandemic shifts corporate and consumer demands.
Ultimately, founders should use this period as an opportunity to carefully review their business model and offering to ensure that the startup will succeed in a post-COVID world.
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