SBAA Welcomes PM’s Innovation Plan
The Small Business Association of Australia (SBAA) wishes to congratulate the Turnbull Government on the Innovation plan and commitment announced on Monday. Not only is this initiative good for start-ups but also for all small businesses. Many of the parts of SBAA white paper and policies have been answered in the plan.
In the 2013 White Paper “Saving Small Business” we wrote:
“The Risks for SMEs
Small to medium business is usually all about growth and struggle. These entrepreneurial leaders strive to take a business from a start up to a size that maintains a life style they envisage or to a point in the market where it can be sustained with a reasonable degree of ease.
To get there the owner/s mortgage their house to provide the funds to start and or to grow the business. They take as little salary as possible, they lease a business property, machinery, equipment and a car. They establish supply lines on credit to support the business. They offer credit to their clients, they collect taxes on behalf of the Government and they employ the majority of the private sector work force.
In good times the business stays healthy and the business owner/s generally cover their costs and plow the profits back into the business.
At no time have they any opportunity of providing a financial reserve when the market downturns, as it has. When the business collapses the business owner/s are fully exposed. Different to an employee who may sadly lose their job, the business owner/s not only lose their job but are fully exposed to the borrowings against their home, the leases and the creditors debt as well as possible client bad debts. This can be an overall debt too high to repay.”
“If nothing is done, more small business owners will not only lose their income but they will be burdened with an enormous debt from which they may not recover. Not only will this failure dramatically drive unemployment but we will create a generation of new poor. More importantly we will destroy the entrepreneurial spirit which is Australia’s strategic advantage.”
The Government has answered with a recognition of the plight of small business entrepreneur and relaxation of the burdens placed on the business entrepreneur. The new bankruptcy laws are a good start to shift blame away from the business owners and offer them a chance to recover.
“A P/L was originally established to protect the business creator, the entrepreneur, the limit of the paid up capital being the total exposure of the business. This does not happen anymore. If the company fails to adapt or survive in an ever changing critical, financial environment, sometimes with that financial damage created by Government, then the business owner is not supported nor protected but destroyed, sometimes, never to return to a personal, positive, financial position, and never provided the opportunity to restructure and survive.”
“If the business hits difficulties there is no mechanism to save or restore it. If a lender (bank) decides to re-evaluate the business or the security and appoint managers or receivers, they (the receivers) are under instructions by law to sell off everything they can as quickly as they can to retrieve as much as they can for the lender and this is at the same charge out rate whether the company be large or small. There is no consideration for the owner even though the decision was out of their control.
We need to protect entrepreneurial spirit and change the rules of the private company back to the original intention. Focus should be on support for the small business person, to assist them and give them time to restructure if it is possible.”
The Government has answered by allowing businesses to trade whilst insolvent if there is a chance the business can recover. They will have the freedom to fail and get back on their feet. It was refreshing to hear Mr. Turnbull refer to business failure as a positive of having a go.
(In P/L Companies) “The banks secure the business with the personal property of the Directors and the Taxation Department holds the Directors responsible for the company debt. The rules around Directors (the same as those of a Listed Public Company) are so draconian that few experienced, management, legal or financial professionals will take a position on a small business Board of Directors leaving the business exposed to the skill set of the owner/s which is usually in the skill of the business activity. The exposure is so open, now, that it is difficult to attract investment from professional investors without their need to control the company.
P/L s are also too restrictive for private investment. The restriction to attract broader investment and the inability to remove or for shareholders to exit, are two of the biggest constraints.”
The Government has answered by providing tax incentives to attract investors by “removing the bias against businesses that take risks and innovate.” * This is a good start but more focus has to be on relaxing the rules around Directors so as to attract talent at Board level and attract the investor to safely take a Board position.
Overall the SBAA is very pleased with commencement of the Innovation agenda as a start in the support of small to medium enterprises (SMEs) and start-up companies and look forward to the implementation process.