When will it get back to normal? Your choice in uncertain times

Carol* was in a state. She had just spent over and hour and a half on the phone with Centrelink trying to assure them of her entitlement to a JobSeeker payment. When she finally convinced the agent that she had registered several weeks ago, at this precise moment, the phone dropped out.

She called me in tears, “It’s not fair” she said “I don’t understand, I’m so confused, when will it get back to normal, and what if it doesn’t”

Carol has run a highly successful retail operation for many years. It is only quite small employing herself and a couple of casual assistants. The business is quite profitable and produced (until recently) a comfortable lifestyle for Carol and her family.

She has never had to deal with Centrelink, nor has she ever asked for any government support of any kind. She recently closed the shop to wait out the crisis as she had spent a few days in the store without a single customer visit. Carol also owns a couple of commercial properties.  Compounding Carol’s problems, the business tenants have shut down their operation due to lack of custom during our enforced lockdown and have stopped paying rent.

Carol’s situation is not unique

Carol’s problems are being experienced by business owners and many others across the country, indeed around the world. Our current predicament caused by the COVID-19 pandemic will challenge many of our beliefs upon which we base our definition of “normal”.

There are a couple of  widely held beliefs that are now proving to be untrue:

“My Business Is My Super”

Most business owners believe that they will sell their business one day and that the proceeds will fund their retirement. Many do not make separate provision as a result. For nearly a decade I have been almost begging business owners to have 2 plans: a personal financial plan and a business plan. For a video on exactly this issue, check “Stressly’s Tale” here. Some business owners are now confronting the prospect that their business may never re-open, and even if it does that they would prefer to retire now rather than face the struggle of rebuilding. The difficulty, of course, is that there may not be too many buyers.“If I accumulate enough property, I can live comfortably in retirement from the income”

I can live on my properties for my retirement

Whether commercial or residential property, the current environment is proving this to be false. Landlords everywhere are either experiencing diminished rents or no rent at all as their tenants suffer unemployment or deteriorating business conditions. Government intervention in the way of moratoriums in eviction etc. has meant that landlords are often unable to do anything about it. Retirees who have not qualified for Aged Pension because of the property assets they hold are now in a real pickle, no income and no qualification for income support.

“You can’t lose money on property”

For the most part, this is true, as it is for shares, if the asset is held for long enough, values will increase. You certainly can lose money on either type of asset if you have to sell. There is likely to be a rush to liquidity by property owners in the coming months as they try to solve the cash problem many of them are facing as outlined above. This could create downward pressure on values which will mean that some will be trying to dispose of assets at the worst possible time. Many years ago, another client lamented how he had modelled every eventuality in his property development project except “Not being able to sell now at any price”

“They should do something about it”

Quite apart from wondering who “they” are (I guess in most cases it is usually the government), I have to question what could “they” or anyone do about a situation like this. To be fair, the government response in Australia has been swift, which is why we have had a comparatively low level of mortality compared with other parts of the world. In addition, our government has provided economic support and stimulus at levels which are unprecedented, even in times of war. It could be debated as to whether all of the measures have been appropriately targeted, or whether the needs of every citizen have been met, but most would agree that our governments both State and Federal, have tried very hard in an extreme circumstance to do what they believe to be the right thing.

“I Don’t need to worry about planning for the future yet”

When income is steady and assets are increasing in value, it is easy to become complacent. Your own version of certainty, the belief that you can count on money coming in to buy your groceries could well have been challenged in recent times, and for how long this uncertainty will continue is anyone’s guess.

The trouble is that many businesses have experienced their “Coronavirus Moment” before, and yet people in other industries have largely continued as if they could never be under threat in a similar fashion. In “I’m a Business Owner Too” here I spoke about

• Video Store Owners – Netflixed
• Record Store Owners – Spotified
• Photo Labs – Digitised
• Bookshops – Amazoned
• Taxis – Ubered

The only difference between the plight of those businesses and what many are facing today is that the difficulty is being felt more widely. Maybe Video Store Owners could tell us a thing or two about life after business. The landlords of those same video stores would also be worth having a conversation with.

As financial advisers, we are in the business of providing our clients with choice. For many business owners the choice as to whether to continue to operate or not has been taken away from them. This could be permanent or if temporary (for a discussion around choice for business owners, see “Are You Making The Right Choices In Small business” here). Through lack of planning many do not have a choice to contemplate our current business environment as a retirement trigger. For landlords, particularly those who have retired, there may be little choice but to completely revise what they anticipated would be the driver of their retirement income. Now, more than ever, seeking advice in such uncertain times can clarify the options available and reduce the anxiety caused by uncertainty. When will it get back to normal? Anyone’s guess.

*Name changed