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Warning Signs

Reading time: 1 - 2 minutes

Bankruptcy and corporate collapses were the highest ever recorded in Australia in 2012, with only 5% ever paying a dividend. On top of this many more businesses and individuals entered formal debt arrangements.

So what are the typical warning signs?

Poor Structure

Many sole traders lose their house when a corporate entity would provide greater protection. A single director company where that director has minimal ownership of personal assets is preferred.

Poor Accounting

A first warning sign. This is a constant in insolvency. Directors should know the detail of their accounts, along with product margins and industry trends. If this isnt your strength, partner with a good accountant who offers quarterly management meetings.

Staff Turnover

Keeping a good team indicates a solid business. To do this, regular meetings and strong communication are a must.

Lack of funds

Bounced cheques, exceeding the overdraft, loaning of personal funds. None are good signs. And look out for the bank wanting more security.

Putting up the House

If a lack of funds is an issue, most directors will tip in out of their own pocket. Sometimes even sell selling or mortgaging the family to do so. If this is the case, liquidation should be on the agenda first.

ATO Debts

A failing business will use the ATO as a bank, by failing to pay withholding and GST obligations. Along with this is short-changing employees by not paying compulsory superannuation contributions.

But beware. The ATO now has more comprehensive powers to recover unpaid withholding tax and super from directors where it remains unpaid for 3 months or more.

Demand Letters

A mailbox that has letters demanding payment is never a good sign. Unopened mail is another cause for concern. Specialist liquidator advice is definitely recommended.

 

Nodding your head or has this got your head spinning a bit? Then contact Cliftons today before its too late.

For more about how we help business everyday, visit our My Business section.

 

Photo by Tyler B on Unsplash

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