Business making losses or profits deteriorating? Having difficulties paying suppliers and other creditors? Struggling to pay employee superannuation or can’t afford to pay your own wage? Don’t stick your head in the sand.

These are all key signs of insolvency, and sticking your head in the sand, in other words, ignoring the problem and hoping it will resolve itself, may seem like a reasonable solution, especially if you’ve had lows you’ve recovered from in the past.

However, the reality is that doing nothing or keeping doing what you’re doing when your company is in financial difficulty won’t help the situation. In fact, it can actually make it much worse. Here’s how.

You end up shouldering the financial burden

When a business is experiencing financial troubles, it’s common for directors to carry the burden themselves. This is done mentally as they keep problems under wraps to avoid worrying employees or losing face. It’s also done financially.

If cash is tight, sacrificing your own wages to improve cash flow might seem like an easy fix. Alternatively, you might look at refinancing your own home and injecting the realised funds to revive your struggling business.

While this is doing something and may seem like a good fix, it’s not actually going to resolve the inherent problems in the business that led you here in the first place. Instead, it’s just putting your own money and home on the line on top of potentially losing your company.

You become liable for director guarantees

Have you entered into an increasing number of director’s guarantees (personal guarantees) to take out loans on behalf of the company, such as a finance loan?

If you have and your company is struggling to make payments for these loans and contracts, you’re personally liable to cover the shortfalls under the agreement.

Where the amount is significant and you can’t afford to finance it from savings or by other means, such as refinancing, this can lead to personal bankruptcy, and, worst case, you’re at risk of losing your home.

Is-Your-Business-In-Financial-Distress

You become personally liable for tax obligations

If your business’ financial situation has reached the point where you’re struggling or unable to meet your tax obligations, you can become personally liable for company tax debts under a director penalty notice (DPN).

A DPN is a formal document issued by the Australian Taxation Office (ATO) to pursue directors personally. Tax debts directors can be held personally liable for include:

  • Pay-as-you-go withholding
  • Superannuation guarantee (SG) liabilities
  • Unpaid goods and services tax (GST)

If you receive a director penalty notice and fail to act on it – either not making the payments or reporting them, this debt will be in your personal portal gaining interest and may stay there indefinitely, affecting your credit rating.

You take away the option of turnaround

If you do nothing and continue as you are, as well as being affected by the above, you ultimately end up limiting your options and even preventing your business, which could have been saved, from being saved.

This is because the longer you leave your business to flounder, the harder it will be to obtain finance, the more strained your customer and supplier relationships will be, and the tighter your cash flow will get.

A restriction in cash flow, the lifeblood of your business, affects your ability to purchase supplies, pay wages and rent – things that can ultimately make it impossible to continue trading.

The end result of this is that your business can no longer be turned around, and a formal insolvency appointment – typically either voluntary administration or liquidation must be made.

If you’ve already hit this point and need to wind things up, your best option is to take control and initiate it yourself. If not, your creditors or the court will take the lead.

As you can see, nothing good can come out of doing nothing. In fact, inaction can be a sure-fire track to greater financial problems – both for your company and for its director/s personally. Worst case, it means waving goodbye to your business.

The quicker you act, the more options you have and the better your chances of taking control and turning your financial troubles around.

Is your business financially struggling? Take action today by getting in touch with our team of turnaround specialists on 1800 534 534 or via our contact form. They can assess your situation and explore all of the options available to take your business back to profitability.

Topics: Voluntary Administration, Tax Debt, Turnaround & Restructuring, Business Debt, Lending, Liquidation

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