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This is a common scenario that comes past our desk at What is Liquidation. Most directors of businesses will experience some type of failure to varies degrees and for a number of different reasons. The key is to acknowledge that your business is failing and seek professional advice. So, don’t refuse to acknowledge there is a problem and bury your head in the sand, because we often find that the sooner directors seek our advice, the more options are available to potentially save their business.

The long and short of it is that directors don’t set up businesses to fail (i.e. become insolvent), but it happens because the business doesn’t make enough profit over time or business owners take too much from the business. We often see the latter happens all too often though.

Quick Tip: If your business is insolvent (i.e. can’t pay its debts as and when they fall due), as director, you have a duty to follow proper standards and act strictly in accordance with the law, because failure to do so, could leave you open to personal liability.

If you are concerned make sure you continue reading this article and contact us.

Listed below are some of the key reasons that may trigger the failure of a business:

  • Cashflow problems (including a lack of cash).
  • Loss of a major customer/client.
  • Balance sheet constantly remains in a negative position.
  • Overdue taxation liabilities (i.e. GST and PAYG).
  • Trading losses or declining sales.
  • Legislation changes impacting negatively on ability to trade.
  • Outstanding trade creditors past trading terms.
  • Loss of key members of staff.
  • Unable to keep up with rent and lease payments on time.
  • Receiving default notices, legal demands and other pressure from creditors.

If you are experiencing any of the above, we would suggest that you consider talking to a professional insolvency practitioner as soon as possible.

Why you might ask? If professional advice is sought early on and appropriate changes are implemented, then you may be able to save your business. Sometimes a Voluntary Administration could be the best option to setup a reasonable payment plan with your creditors and other times your business may just need funding or financing to keep creditors at bay whist a restructure or turnaround strategy is put in place.

If your business is currently failing, this doesn’t mean a professional insolvency practitioner can’t help make your business profitable again. Depending on the financial problem(s), the following options may be available:

  • Voluntary Administration
  • Restructure or Turnaround
  • Increase Cash Flow through Funding or Financing

Let’s say in a scenario where your business is viable, but it needs a little financial assistance to steer it back in the right direction, then it may be in your best interest to attempt to save it, instead of losing a good business. Placing your company into Voluntary Administration as an example, will allow the business to pay off it’s debts over a period and you remain in control of your business.

If, however, your business product or service is outdated or not in demand, it may be time to consider placing your company into a Creditors Voluntary Liquidation (a formal insolvency process type). Continuing to trade your business should it be deemed to be insolvent on either a balance sheet or cash flow basis, would mean that you are not adhering to your director duties.

So, if your business gets to the stage where it is insolvent, the question here is whether you are going to let a creditor (someone the business owes money to) push your business into a formal insolvency process, or whether you will take control and choose insolvency as the best outcome to solve the problem.

The consequences of not seeking professional advice or not doing anything may result in your business being lost and can seriously impact your personal financial position.

So, what is the best way to save your business from failure (or even insolvency)? The answer is to seek advice from a professional insolvency practitioner earlier rather than later. It is important to note that the longer you leave it to take action, the less options are available to you and your business.

If you are worried that your business may show signs of failure or you want to save your business, contact What is Liquidation via telephone 1800 647 434, send a message via our website or chat online to schedule a free, confidential consultation to learn more about your available options.