Reasons for employee layoffs revealed

Media Release

16 April, 2020

Reasons for employee layoffs revealed: 1.2m businesses were already making sacrifices to stay afloat

New research has provided a clue as to why Australian businesses have had to let go of their employees so quickly after the Government-mandated shutdowns. Existing cash flow struggles were already causing financial strife for nearly one in two SMEs.

Money.com.au – a new online financial information platform for businesses and consumers – commissioned a survey of an independent panel of 261 Australian business owners to learn how healthy or unhealthy businesses were before the pandemic via their cash flow circumstances. The full survey results, including breakdowns across organisation size and location, can be found here: money.com.au/business-owner-sacrifice

Cash flow is the biggest challenge of business ownership and can lead to insufficient funds to pay bills, debt and employees. Prior to the shutdowns and restrictions, more than half (52%) of business owners – and 73% of small business owners (between 11-50 employees) – had forgone or delayed paying themselves an income due to cash flow issues within the business.

Among this 52%, 17% of business owners have forgone paying themselves altogether during some pay cycles, 30% have often delayed paying themselves, and 17% had paid themselves in lump sums when the business had the cash.

Small business owners (11-50 employees) have dealt with the issue more: 49% have delayed paying themselves often, and an equal 9% have gone without pay completely during some pay cycles or paid themselves in lump sums.

A business owner’s personal life is also strongly impacted by the health of their business. Money.com.au found that 56% of business owners – and 66% of small business owners – have had cash flow issues in the last two years had led to financial difficulties in their personal lives.

The survey also found that half (50%) of business owners overall and 66% of small business owners with 11-50 employees[2] admitted they were earning less than their top employees.

Licensed financial advisor and Money.com.au spokesperson Helen Baker says: “That half of business owners with employees are earning less than their employees is one of the factors that is likely leading to cash flow problems. These business owners might have taken a leap to hire a highly qualified employee when they aren’t in the most financially stable position to do so. They might have an expectation they will find the income to cover the high salary, meanwhile taking a dip in their own income. I see this more commonly in service-based businesses.

“The Government’s stimulus packages will be providing much-needed assistance to struggling businesses. However, it’s businesses who need cash to tie them over in the short term – those whose income has reduced significantly rather than ceased – who will find the Government assistance most beneficial. Those businesses that have been struggling with longstanding cash flow issues prior to the pandemic will be struggling to stay afloat during this time. The Government’s measures may assist the business slightly, but this is likely to come at a cost – once again, seeing business owners sacrificing their own pay.”

Full survey results, including breakdowns across organisation size and location, can be found here: money.com.au/business-owner-sacrifice

Source: The Ideas Suite.

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