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Managing a business is an enjoyable experience when everything’s going to plan. But when your business isn’t performing well, it can be a daunting experience. The secret is not to panic. Every business hits a rocky patch at some time, and there are steps you can take to get your finances back on track.
The most important step is to make sure that communication lines remain open, and that you talk to everyone who’s being affected and who could possibly be a part of the solution.
What are the signs of financial trouble?
Signs that your business may be experiencing financial issues include:
- Poor cash flow – this is the major cause of businesses failing, as cash flow is the life blood of any business.
- Ongoing losses – the inability to earn a profit can indicate problems in financials that may be caused by rising costs, shrinking markets, or increased competition.
- Tax debts – overdue lodgements and outstanding tax bills can be a sign of trouble ahead.
- Inability to obtain finance – being rejected for loans or having your line of credit reduced can also indicate financial difficulties.
- Unpaid creditors – debts that have blown out beyond the normal trading terms are usually an indication of financial problems.
Who should you talk to?
The answer to this question is anyone and everyone involved, and the earlier you contact them the better. This is because the sooner you can get a handle on the problem, enlist help from others and work out a plan of action, the more likely it is that you’ll weather the storm and emerge with your business intact.
Your accountant
Your accountant should be your first port of call, and if you don’t have an accountant, then you’ve already found your problem. Unless you have someone maintaining your books, there’s no way you can monitor the movement of money in and out of your business. If you do have an accountant, they’re probably already aware of the problems facing the business and will hopefully have some suggestions on what you can do to improve things.
Other directors
If you’re a company with a board of directors you should get together with your fellow directors at the earliest possible time because, as directors, you’re liable for the actions of the company. You need to look carefully at your current financial situation and decide whether you can turn things around, or whether you may have to look at other alternatives such as voluntary administration. Directors can also be held accountable for trading whilst insolvent, so you might want to seek professional advice before deciding on a course of action.
A business administration expert
Obtaining advice from a business restructuring specialist could be your best course of action, as they will be able to assess whether your business needs to be restructured. They will do this by conducting a comprehensive review of your business, and then using that information to show you the available options that offer the best financial outcome for your business. Potential outcomes of this include restructuring, refinancing, or voluntary administration.
Your creditors
Rather than hiding your financial struggles from your creditors, the best course of action is to speak openly with them at the earliest opportunity and reassure them that you’re working towards resolving the problem. You can enlist their help by requesting an extension on monies owed, offering partial payment now, and arranging to commit to a payment plan. Your bank is one of your major creditors, so make sure you’re talking regularly with them about your progress. Being proactive is more likely to gain their support than waiting until there’s a crisis.
The ATO
The first step when managing your business tax debt is to talk to the Australian Tax Office about the amount you owe. The ATO is much more sympathetic to businesses experiencing financial difficulties now than it was in the past. In certain circumstances they may be able to provide you with more time to pay, a tailored payment plan, or remission of general interest charges.
Someone who cares
Experiencing business problems is a stressful time. So in addition to talking to those involved directly with the problem, it’s important to be open with family and friends, as they can be your greatest source of support. Tell your spouse, partner or close friend what’s going on, because as the saying goes, a problem shared is a problem halved. And who knows? They may be able to help, even if it’s only by making things easier for you at home.
What you should consider
When talking with your accountant or fellow directors about what you can do to help turn things around, there are some things worth keeping in mind:
- Accounts receivable– this is one of the most important aspects influencing cash flow in your business, and simply by speeding up the receival of payments you can increase your cash flow immediately. Ways to do this include offering discounts for early or punctual payment, streamlining invoicing procedures, and chasing up overdue debts.
- Inventory – having too much stock on the shelves could be costing you money. Only stock those items with a faster turnover and implement a ‘just in time’ inventory for everything else. The secret to this is to have a reliable supplier and delivery chain. Carrying less stock could also allow you to reduce staff numbers and downsize to less expensive premises.
- Capital expenditure – look at upcoming purchases of plant and equipment and determine whether they’ll generate the cash flow needed to pay for them. If not, then defer the purchase rather than incurring additional debt. Also consider selling off assets which aren’t performing or contributing to the financial health of the business.
What’s your next step?
If after reading this guide you’re still not sure about your best course of action, you should give Australian Debt Solvers a call. Part of the Mackay Goodwin Group, we specialise in providing financial advice for businesses experiencing problems, and we can help you find the most appropriate solution for your business.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
