Don’t ignore the financial warning signs in your business. Get financial advice as soon as possible.

 

No matter what stage your business is at, there will be times when finances (particularly cash flow) become a problem. But rather than ask for professional insolvency advice, a lot of business owners do their best to ignore the problem instead.

Why? Well, here are three main reasons we’ve learned from working with our clients:

  1. They don’t think it’s a problem
  2. They do think it’s a problem, but hope it will miraculously sort itself out
  3. They know it’s a problem, but don’t want to face the reality that they could lose everything.

Over the years we’ve learned that financial problems are a lot like health problems. Get them diagnosed and treated early, and you’ll be on the road to recovery in no time. But if you ignore them, they’ll only become worse.

And in some cases, fatal.

We understand that financial problems can seem insurmountable at times, and that the resulting stress and worry can be paralysing. But just as putting off seeing your doctor can make things worse, putting off getting financial help from a professional can ultimately lead to business failure.

Everyone wants your business to get better

The good news is that most of the people who deal with your business want it to continue. Even those you owe money to, or are disputing with, will happily work towards a positive outcome. After all, getting your business back on its feet will help them just as much as it helps you.

And being in financial trouble doesn’t always mean insolvency or liquidation. As part of our strategy we liaise with the Australian Taxation Office (ATO), landlords, shareholders, creditors and even insolvency practitioners to come up with the best solution for both creditors and business owners.

Early intervention is vital

To get the best possible outcome for your business you must act quickly. As soon as you realise your business may be in financial trouble, get in touch with us. If you just stick your head in the sand and try to ignore it, it won’t be long before your business is… well, cactus.

So how do you know when your business might be in financial trouble?

Here are nine early warning signs that you may need to get insolvency advice, along with the sign that it may already be too late.

1. You can’t meet your upcoming BAS or quarterly superannuation payment.

While it’s important to pay all your debts, it’s vital that you pay your superannuation and PAYG withheld on wages. If you don’t, you may receive a Director Penalty Notice from the ATO that could make you personally liable for these debts.

You’re leaving it too late if:

  • you haven’t lodged your last two Instalment Activity Statement (IAS) or BAS instalments with the Australian Taxation Office (ATO)
  • you can’t remember when you last paid super or, like most people, you have never heard of an ATO quarterly Superannuation Guarantee Charge Statement and certainly haven’t lodged one for your unpaid super.

2. There’s enough money to pay wages and rent but not your suppliers, and so you’re trying to divvy up the remaining funds as fairly as possible.

If things get worse for your business, you’ll need the support of your creditors during the recovery process. But if you keep them in the dark, lie about payments, or continue accruing debts, you’ll quickly lose their faith in your business (and possibly their support).

You’re leaving it too late if:

  • you’re paying selected creditors only
  • rather than paying the ATO, you’re treating them like a bank.

3. You’ve failed one ATO payment arrangement, but are confident you can meet the second one you or your accountant has negotiated.

Meeting payment terms that you and your creditors have agreed on is a great way to ease financial pressure on your business. But if you fail to meet those terms, then there’s a good chance your business is insolvent. Remember: payment arrangements are a temporary lifeline to help you deal with critical issues in your business, not a way of financing other aspects of the business.

You’re leaving it too late if:

  • you’ve failed to meet three or more payment arrangements, and while you’ve assured your accountant you can meet the next one you actually have no idea or are just hoping you can.

4. You need to lend your company some money to cover BAS, rent or wages.

By using a company, you can protect your personal assets from becoming available to company creditors (with a few exceptions). But putting your money back into the company (especially without a loan agreement and PPSR security interest) defeats the purpose. Not only that, it will limit the funds you have available to manage your personal finances. (When a company is liquidated in these situations, the director often becomes bankrupt as well.)

You’re leaving it too late if:

  • you’ve made multiple transfers to your company, or even borrowed against your house
  • you haven’t drawn a salary from the company for at least three months.

5. You’ve stopped ordering some slow-moving products because you can’t afford to hold the stock.

If you’re losing sales because you can’t stock the products you need, your business reputation will be damaged and sales may end up in a downward spiral.

You’re leaving it too late if:

  • you no longer stock a number of products, and often have to turn customers away because you can’t get the product they want within a reasonable timeframe.

6. You’ve come up with a plan and timeframes to deal with your issues and ensure they don’t lead to potential losses to suppliers and becoming liable for insolvent trading.

Continuing to trade without knowing whether you’re making things worse for your company and its creditors could cost you more than just money. If you’re found liable for insolvent trading, you could be criminally prosecuted.

You’re leaving it too late if:

  • you don’t have a plan to deal with your issues, but are hoping the next customer will pay you soon so you can make some outstanding payments.

7. You made a trading loss in the last quarter, but have made changes to improve in the next one.

Business challenges are not only constant but also changing constantly. Something that worked well last month may not work at all this month, and so you’ll have to make some adjustments. But you can’t make any adjustments without up-to-date financial accounts.

You’re leaving it too late if:

  • you’ve had months (or even years) of ongoing losses
  • you feel helpless, and believe it’s all due to factors beyond your control
  • you’re hoping things will miraculously sort themselves out as your accounts manager fields angry calls from suppliers.

8. Your net current assets are about the same as your current liabilities.

A strong indicator of whether a business is insolvent is its net current assets balance (current assets – current liabilities).

You’re leaving it too late if:

  • your net current assets are below your current liabilities, which means you have far less cash and cash-convertible assets than you owe (or will shortly owe) to creditors.

9. Your trading results are below your annual budget, or you have less cash than projected in your cash flow forecast.

Having an idea of your trading targets, based on your breakeven point, will help you understand whether last month was a great one—or a shocker.

You’re leaving it too late if:

  • you don’t know whether you’ve made a profit or loss for the past couple of months
  • you’re asking yourself, “What’s a cash flow forecast?”

Being honest helps both you and those you deal with

While it would be hard running your business without a shopfront and stock, it would be impossible to run it without your employees, customers and suppliers. And ignoring these financial warning signs will hurt them just as much as it will hurt you.

Getting professional insolvency advice as soon as you realise there’s a problem will give your business the best chance of surviving its challenges and avoiding liquidation. And it will give you the best chance of avoiding personal bankruptcy.

Think your business may have financial issues? Then get in touch with us today and give both yourself and your business the best chance to overcome them.

 

Posted on 19-12-16 in Business, Business insolvency, Business Solutions.