Find out why people start a business in 2020 and why it is a good time to start a new business in 2021.
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The coronavirus pandemic has devastated the Australian economy and has adversely affected workers, employers and entrepreneurs. As a result of government restrictions, unemployment has risen and the short term future remains largely uncertain. At first glance, it might seem like a bad time starting your own business. However, the current business climate presents an opportunity for those willing to take advantage of it, as we saw with many companies in 2020.
As the year progressed and the economy reopened, a gradual financial recovery began to emerge. Despite unprecedented challenges, many big things happened for companies in 2020. From the largest ASX listing by a co-founder to a 50% increase in the number of companies incorporated in Australia from May to June this year. With that in mind, the pandemic opened up an opportunity for budding business owners to get creative. Employees who spent more time at home (due to remote work or layoffs) had time to get their ideas off the ground.
Many of these opportunities and incentives will continue and may even be enhanced through 2021. This article explains some of the reasons that led to new small business startups in 2020 and why entrepreneurs have good reason to be optimistic about 2021.
Starting a new business can seem daunting in turbulent economic times. Trying to establish a brand, business, or service in an established market can be difficult. To shorten the transition period, it is crucial to take advantage of government and market-based incentives. These incentives helped pave the way for new businesses to be launched after the pandemic. Many of them are still available to people who want to start their own business in the future.
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In response to the pandemic, the federal and state governments have introduced a number of programs to help small businesses and encourage people to start their own. These incentives are often substantial and can make a small business start easier in a wide range of ways. They address a variety of concerns including but not limited to wages, access to credit, and loss carryforwards.
Wage subsidies (JobKeeper and JobMaker)
This incentive provides employers with a financial incentive to hire and retain eligible jobseekers in ongoing and sustainable positions. Companies launched earlier this year needed financial assistance in 2020 to keep employees on the books while they were closed.
- Availability: JobKeeper will expire at the end of March 2021, JobMaker is still running
- Amount: Up to $ 10,000
- What kind of deal ?: All Australian companies
- Eligibility criteria: If you have an ABN, are you hiring an eligible jobseeker for a current position, if you have not previously received a wage subsidy for the same person, offer a position that averages 20 hours per week over 6 months.
Loan Support Program
The government wants to give small business owners a sense of stability by making it easier to access credit.
RBA monetary policy
The Reserve Bank of Australia has cut rates to historically low rates (0.1%). This was done to stimulate the economy and encourage lending. The RBA also runs a bond purchase program that lowers funding costs for all borrowers in Australia. Governor Phillip Lowe said that “people shouldn’t expect the cash rate to rise again for three years.”
Support business investment
Backing Business Investment is a government program that supports sole proprietorships. This contains:
- A 15 month investment incentive designed to support business investment and economic growth in the short term by accelerating depreciation deductions.
- This applies to eligible assets acquired from March 12, 2020 and first used or installed by June 30, 2021.
Rural financial advice
The government has provided funds to provide small regional businesses with free financial advice. Companies that are eligible must:
- Do you have 19 employees or fewer.
- Located in a regional area.
Environmentally friendly subsidies
- The Australian government runs the Clean Energy Finance Corp (CEFC), which aims to facilitate increased flow of funding into the clean energy sector. It aims at clean energy and also at energy efficiency improvements for small businesses. Every state and territory offers companies financial incentives to reduce their environmental impact and improve their long-term sustainability.
- The New South Wales government offers discounts on new appliances and equipment that reduce energy consumption.
- The Queensland government has developed programs to help businesses save energy and adopt energy efficient practices.
- The South Australian government is running programs to reduce energy and water consumption in order to reduce operating costs and greenhouse gas emissions.
- The Victorian government is helping companies cut energy and find ways in which companies can go green. Their solutions include Sustainability Victoria and the Victorian Energy Saver website.
Depreciation on corporate assets
The instant asset depreciation threshold was raised through the end of 2020. As a result, companies have higher cash flow and can instantly withdraw asset purchases up to $ 150,000.
Carry back loss
The latest federal budget in 2020 helped small businesses apply for a refundable tax offset if they had previously paid corporate taxes and subsequently made taxable losses.
Changes in corporate bankruptcy law
The government changed the bankruptcy framework to help small businesses. The main changes are:
- The legal demand limit for debt collection has been increased from $ 5,000 to $ 20,000.
- The deadline for responding to legal requirements has been increased from 21 days to 6 months
Outside of man-made programs, the COVID-19 pandemic has created a number of market-based incentives for small business creation.
The COVID-19 pandemic has created a growing demand for locally produced goods and services. The use of local goods and services is generally associated with small businesses. This will best enable them to take advantage of this growing demand.
The proliferation of digital marketing will make it easier for small businesses to advertise efficiently (and cheaply) in 2020. The ability to target market segments online is revolutionizing advertising for small businesses and enabling them to maximize their potential.
Growing concerns about corporate environmental impacts can turn consumers away from large multinational companies, which tend to have a high carbon footprint. As a result, local and sustainable businesses are benefiting from this new class of environmentally conscious consumers. This is a market segment that will continue to grow in the future.
The pandemic has led to high unemployment and difficulty finding work. For example, it is common for a single job to have hundreds of applicants. This goes hand in hand with growing uncertainty about the future of the job market and what skills are required to be successful in the future.
Job loss is severe across Australia, leaving people looking for what’s next. Unemployment changed by 33.1% annually and 28% of 18-24 year olds lost their jobs. Jobs that would have appeared “future-proof” and secure were also threatened and made unsafe by the outbreak of the pandemic. Therefore, the unemployment crisis could possibly remain an issue in the years to come. Additionally, the transition to a service-based economy in Australia is being accelerated by the pandemic and the resulting recession.
This situation has resulted in people trying to start their own business as a breaker. In particular, the pandemic has affected young people’s ability to find employment, prompting them to start their own businesses instead of following traditional career paths. In the future, many people may consider the freedom and control to own their own business to be the best way to navigate a difficult job market.
The pandemic isn’t the only crisis we face, and it has exacerbated some of the crises that have plagued our communities for years, such as homelessness, climate change, and health care. Social impact companies are companies that prioritize goals that address community problems. Social impact companies are important as they use for-profit business models and make them sustainable, creating a snowball effect.
Hence, there is a growing desire to start small businesses as a vehicle for social impact. The demand for sustainable businesses is growing in Australia. This is linked to the corporate responsibility trend that has taken hold among the largest companies in the world. Companies with a social impact can benefit from the growing number of socially conscious consumers. Investment in these companies is increasing, and many venture capital funds and investors are looking specifically for socially impact companies to invest in. The most successful social impact companies can solve consumer problems while helping to solve them. Developing a business model with this in mind has already proven extremely valuable and is likely to inspire more small businesses and startups in the future.
When trying to start your own small business, it is important to understand the various legal challenges that come with it. To give your business the best chance of success, we recommend using the resources available at Lawpath.