You’re a business owner and you think things are going well, but are they really? What are the signs that you should look out for?
Are you drawing an income?
Our first conversation with our clients is when is the last time you drew a salary or wage. For a lot of business owners it is a luxury to be drawing a salary from their business. If your business cannot sustain you income needs then it may be the case that you have a distressed business.
If you don’t receive an income from the business you need to careful consider if it can afford you to not be there, if not then the business is probably not sustainable.
Are you using personal credit cards in the business?
What is funding your business and is it personal debt? For a lot of business owners they are using the personal credit cards as the core part of the business. Does this mean that you are funding the business through your credit cards, worse still is the business not reimbursing you for these advances?
Businesses that are struggling for cash flow funding lines are the first that will demonstrate signs of distress, this means that bills are generally being paid as they drop in, and the reversion to the personal card means that the business can’t stand on its own feet.
Are you avoiding phone calls?
A tell tale sign for business owners is avoiding the private numbers or avoiding suppliers that are pressing for payment. A lack of communication is generally systematic of bigger problems, but for businesses that are facing this, it is a key sign that things are bad.
If the situation is where calls are being avoided then it means that the business is under severe pressure.
Are your BASs late?
A key sign of things in distress are when your tax reporting is late, it is also one of the biggest risks for small business owners.
In our experience we find that business owners think that it is a good idea to hold off lodging the BAS so that their debts are not increasing. This is counterproductive but also shows that the business is showing the signs of pressure.
The risk of late lodgements is that there becomes personal liabilities forming in the business and depending upon the total liability or the delay in lodging the ATO may be taking collection steps.
Have you missed superannuation payments?
Your employee superannuation payments are starting to be delayed or missed and there is no clear way of catching these up.
When businesses are starting to miss the superannuation then the alarms should be going off as the business is in trouble and in need of help. For business owners this is usually one of the last things that remains unpaid, and it is one of the greatest risk both personally and for your employees.
You’ve grabbed your superannuation
We fear the conversation when the business owner has grabbed their superannuation in order to prop up the business, it is at this time that a business is generally in severe distress.
Early access of superannuation unless under specific conditions is not allowed and can result in significant fines for business owners. Equally, where the business been using the superannuation in order to keep the doors open, it should show you that the business is in severe, and normally unrecoverable distress.
Have your trading terms changed?
An early indicator of distress is that your suppliers have changed their trading terms.
Some larger businesses will assess your business based on credit risk, segment risk or simply looking at your purchases and will make alternations to their credit terms in order to reduce the risk to you.
If there appears to be no reason for the change of policy then you should be concerned that there are issues within the business that may be causing the change in policy.
No business plan?
When first dealing with a business a business plan is the first thing we ask for, even a budget or a set of forward projections. Without these it is a good sign that the business is in trouble and may be under financial distress.
Failing to have forward planning means that the business is sailing blindly and may not be prepared for any changes to trading conditions.
If you are running a business without a plan then there can be a sign of financial distress, it generally indicates to us that there is something that may be lurking, even if on the simple view everything is travelling well.
You are avoiding the place
Humans are predictable animals and if you are avoiding the place this means that there is a reason for doing so.
An often absent manager will be a good indicator of the financial health of the business, if they are avoiding or constantly away then it helps show that the business is probably in a financial hole.
What to do?
If you or the business is showing signs of financial distress opening the conversation early is the best approach. Providing there is time turning around a business in distress is possible and the earlier the approach the more chance of coming up with a better result.
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