Observe the warning lights before you hit the rocks!

By Steve Marsten

It’s disappointing to hear about more local businesses closing down and staff being retrenched. Business owners, together with their staff, go through an extremely stressful period when this happens. I often ask why was it left to go on for so long? Business termination or closure is an economic decision that should be made by business owners who have the fortitude and clarity of looking ahead. Often the final decision is made in desperation and frequently without any consideration of where to turn to.

We have seen many businesses heading towards the rocks however, those who can see the warnings signs; those who can see the turbulence ahead; those who understand what a contracting economy will do to their business - simply make quality decisions earlier.

Over the past 18 months I have lost count of the businesses who we have sat down to discuss cashflow and cost issues. All who have acted based on the actions from those meetings remain solvent today and it’s something that we are proud of. Now that’s not to say some business still won’t go broke. Some business owners make the decision to consult with an advisor far too late and hence the decisions that have to be made are extremely difficult and tough. Often those business owners may not be prepared to make such wholesale changes and inevitably crash the business on the rocks.

Now no one has a silver bullet fix however, being able to identify the tell-tale signs can assist with knowing when the business is heading towards the turbulence of insolvency. We always check the following points:

1. Does the business have a budget to monitor its financial operation?
2. Is there a tax debt building? Often this is GST, super or PAYG Withholding unpaid and is a major indicator.
3. Are there ongoing monthly Trade Losses? If so, seek advice after no more than 4 months.
4. Do you have an online accounting system that allows you to confirm figures monthly and soon after month end?
5. Can you print off a cashflow report for the month and Year to Date? Is your overdraft expanding?
6. Is there a difficulty selling stock or collecting cash from customers? Often changes in the way cash is collected needs to be rectified quickly and stock decisions need to be made as early as possible.

These are just some of a significant list that we address to assist business owners first identify the problem and go through a process of rectification and turnaround. We have yet to have a client indicate that such a meeting is not valuable to their business.

To learn more about keeping your business afloat, ring our team at Sothertons to discuss your turnaround strategies on 4972 1300.