I was very fortunate to be given the opportunity to chat to Chris “Crash” Carpenter from Hills Radio 88.9FM today about how Covid-19 is affecting sole traders, whether or not current stimulus plans are of benefit, and what sole traders can do to maximise their chance of their business surviving this pandemic.
The following is a rough overview of the interview, or access the audio here.
The Talking Points
Sole traders, including freelancers and independent contractors make up 62% or almost 1.3 million Australian businesses. It?s essential they get the right support through this crisis to survive both now and into recovery and beyond.
At this stage we don?t believe the measures introduced by the federal government understand the needs of sole traders, and therefore what has been outlined so far won?t be of much benefit to the majority of us.
QUESTION: what sort of business are we looking at? Are they largely in one or two sectors such as the arts and creative services, or more diverse?
These businesses encompass a very wide range of sectors ? with almost a quarter of self-employed in construction (making up 8.3% of overall workforce), and more than 20% of the overall workforce being self-employed in healthcare and social services (12.8%), and retail (10.5%).
Other larger sectors which make up between 7-10% of the total workforce each include: education and training (8.7%), professional and technical services (8.2%), manufacturing (7.7%), public admin & safety (7.2%).
The remaining 38% of sole traders, freelancers and independent contractors is made up of people in all sorts of jobs. Plumbers, mechanics, sparkies, personal trainers, nutritionists, physios, bookkeepers, financial advisers, real estate agents, accommodation providers, cleaners, artists, musicians, camera operators, hair-dressers, beauticians, landscapers, graphic designers, web developers, copywriters like myself and many others.
These are ?real jobs? and support every sector of our economy.
QUESTION: why are there so many people choosing to freelance or be sole traders?
A lot of people might like the autonomy and freedom it gives them to develop a business where they see a need not already being fulfilled in the existing workforce. The “entrepreneurs” who are creating jobs for themselves and there ideas, where none already exist.
Many sole traders and freelancers had to create their own jobs due to increased casualization and expansion of the ?gig economy?. In many cases larger companies have decided it?s cheaper to retrench full time staff and hire them back on an ?as needed? basis as freelancers and contractors.
People living in regional and remote areas may have had limited employment opportunities and created their own opportunities.
Others have ended up as sole traders because they have had to manage chronic illness or disability that created barriers to more traditional employment routes.
Primary caregivers, predominately women, who work for themselves may have been unable to juggle family obligations around traditional employment.? Establishing themselves as freelancers gives them the freedom to create an income flow with greater flexibility around other commitments.
These are the people who have ?had a go? ? created their own jobs for a number of reasons? and now need to ?get a go? to ensure both they and their jobs survive this pandemic.
QUESTION: It seems a lot of sole traders and freelancers were unhappy with the government?s stimulus package. Why is that?
The first round pretty much left out sole traders, freelancers and independent contractors. Assistance was provided to business with employees to try and safeguard employee wages. But self-employed incomes weren?t included.
We were given access to a $120k asset write off, which has now been increased to $150K, but that?s 2-3 years income for many of us. If we had that amount of spare cash lying around to invest in new equipment, we wouldn?t be concerned about the hundreds of millions of dollars in projects that have literally evaporated overnight.?In the events sector alone, more than $300M of work has been cancelled in the past weeks. And most sole traders and freelancers don?t have $150k lying around for a rainy day.
This prompted the founder of the Freelance Jungle, Rebekah Lambert, to set up a petition for better economic protection for freelancers and sole traders in such circumstances. Unlike wage earners and salaried employees, we don?t get paid when we don’t have client work to do. And we don’t receive any sick leave or annual leave to cover time away from business.
While most of us make allowances for these things ? there is no way we could have predicted or adequately prepared for a pandemic like this. Income Protection may cover loss of work due to illness or accident, but it doesn?t cover loss of income caused by pandemics and loss of clients. Even so, some insurance policies have exclusions around illness cover stemming from a pandemic, negating insurance cover.
When multi-billion dollar airlines require financial aid.. it stands to reason those of us living contract to contract might need some support too.
QUESTION: what about the second round of stimulus which includes payments for those whose incomes have dropped below $1075 p/fortnight?
This is the Covid-19 Supplement which will be available from 27 April and is definitely a move in the right direction, but there is still a lot of confusion around the income testing that applies.
Sole traders and freelancers with spouses or partners are unsure if the income tests apply only to income THEY THEMSELVES receive (such as a client payment), or is also applied to their partner?s income which, once over a certain amount (usually around $48k), disqualifies low income earners from accessing payments in normal circumstances.
I spoke to two government departments yesterday to seek clarification on this and the call centre operators didn?t have the answers. All they could suggest is we apply once the supplement is available and see how we go.
But this adding unnecessary stress on the system, that could be avoided with clearer communication ? something a lot of people feel has not been done well to this point.
QUESTION: if sole traders can?t access the Coronavirus Supplement due to their spouse or partner?s income, hasn?t the government allowed them to access their superannuation?
Yes, sole traders suffering financial hardship can access $10k this financial year and $10k next financial year. However I think this is an incredibly short-sighted and ill-conceived strategy. According to a 2018 report by the Association of Superannuation Funds of Australia Research and Resource Centre, 1 in 5 sole traders have absolutely no super at all. $0.
Another 2 in 5 sole traders have less than $40k in super ? and that number is likely to be higher given the RBA’s announcement last week to implement quantitative easing sent stock prices plummeting and wiped 10-12% off super on average. My own super took a 25% nose dive.
If people need to take at least half, if not all, of their remaining super out to survive this crisis, it leaves them nothing, or next to nothing in their super. Which creates bigger economic problems in 5, 10, 20 years? time when these people are looking to retire and won?t have sufficient super to cover them.
If they need to access pensions for the rest of their retirement, that will be more than $24K a year in support over many years. I think it would be more prudent for the government to provide a once off payment of $24k split over this and the next financial year to support sole traders through this crisis. This will help ensure their businesses still exist in 6-12 months? time so they have a job and clients/customers to go back to, and income to start putting back into super.
If we end up with even half our sole traders losing their businesses, they?ll have to transition to Job Seeker payments and compete against all the other job seekers out there, which will also cost the government $12-15k per person, per year, for who knows how long.
In addition, if you have the better part of 1.3 million people withdrawing an estimated $27 billion in super ? liquidating that level of assets has the potential to cause further shockwaves in the stock markets and wipe even more out of super ? which is the last thing we need right now.
It?s a very short term strategy which might look good on the surface, but will create far bigger economic setbacks in the long term.
I think a far more sensible option would be providing sufficient income to sole traders in the short term to ensure their businesses and customers survive in the long term.
BREAKING: This morning an additional $650 million jobs stimulus package was announced by SA govt to save jobs and support key industries such as retail, construction,?property, hospitality, wine & tourism. This is in addition to the $350 million stimulus announced a fortnight ago and takes total package to $1 billion. Details to be confirmed.
QUESTION: what is your advice to sole traders and freelancers in the short term?
If you haven?t done so already, talk to your bank to negotiate the lowest interest rates on loans and mortgages. It?s in their best interests to keep your loan obligations going. I was even able to negotiation a once-off waiver for a $395 annual fee on my home loan account that was due next month. So ASK!! The worst they can say is no.
But do check that if you make changes you understand any changes that might also make to your loan?s conditions.
Also ask if interest will still be charged on any mortgage holidays you take. This can increase the overall loan amount, rather than simply suspending payments. Be sure to ask your bank to provide a breakdown of costs to assess how much more a interest will add to the loan in terms of both repayments, and time required to pay the loan.
It may be better to switch to interest only and negotiate a lower rate if you can. Here’s a great synopsis from the ABC about how the big 4 banks are managing mortgage holidays (current as of 26 March).
Review any investments including your super. If you have a mix of?high-growth assets, now would be the time to change that to more stable long term growth strategies that are likely to suffer fewer losses if share prices fall lower.
Talk to the ATO about obligations ? they can be very flexible. If you have tax payments due, it’s always good to get on the front foot with the ATO. They can be very helpful if reach out to them.
Send or pre-bill invoices. It may even be worth providing a 5-10% discount for pre-payment of any jobs you currently have on the books. This can provide customers/clients a small financial break and shore up your own cashflow ensuring you get paid sooner, rather than later, when the money may no longer be there.
Review all your current business expenses and cut anything you don?t absolutely need. This might include monthly magazine or software subscriptions, reducing travel and fuel costs, reviewing insurance policies and seeking a better deal, etc.? Obviously this will hurt other?s, but at this time we unfortunately need to focus on keeping our own businesses alive. We have to let others do what they have to for their own business. That is not our burden to bear.
Check out what government grants might be available in your sector. You may find opportunities to expand or modify your business offerings with a grant. There are numerous sites you can find industry-specific grant information.
Reach out to customers and clients.?Ask how they are doing. And if you can go above and beyond, now is the time to forge bonds and create lifelong customers and repeat referrals. Also let them know how your business is being affected and how they can support your business in both the long and short-term if possible. Even if only making a referral or providing a testimonial.
Consider running customer surveys.?This can be a fantastic time to see where you can improve services and better meet customer needs to ensure your business is as profitable as possible both now and into recovery. This may mean reassessing services or products to focus on those with the highest return.
Rethink how you can deliver your services or products. If you sell products, can you switch to online sales if you’re not selling online already? If you are a consultant, such as a bookkeeper, nutritionist, life coach, therapist, strategist, etc., can you live stream consultations to clients you might otherwise meet face-to-face? If you are a personal trainer, cake maker, beautician, IT professional, etc., can you create “how to” webinars or training sessions and guide clients through things online if they can’t come to you, or you can’t go to them?
Now is the time to get creative.
If you DO have some money to spare, invest in digital marketing and improving your online presence (which in current conditions, is more important than ever). There are plenty of freelance creatives such digital marketers, graphic designers, branding specialists, website developers, SEO specialists and digital content creators like myself who can help you whip your website and online presence into shape and help with targeted communications to your customers now and into recovery.
Search online for free webinars and classes around these topics if you can?t afford professionals at this point. Anything you can do to boost the efficiency of your online presence and ability to trade. This might give you an idea of where you can DIY and what you where you might need to allow for a professional to help you.
Above all – exercise patience and kindness!
We’re all in this together. We’re all concerned about the future of our health and our income. We’re all scared and frustrated. But allowing this to become anger won’t help. Shouting at each other won’t help. So if you feel your blood pressure rising, take a moment to regroup and reconsider your approach.