Most businesses we see have been insolvent for many months or years prior to the business owners coming to us. Sometimes this is because business owners don’t know that their business is insolvent or approaching insolvency.

If your business is in financial difficulty, one of the worst things you can do is wait to get help. This is because it is easier to rescue a business showing early signs of insolvency, rather than when things have gotten out of hand.

So how do you know if your business might be insolvent or approaching insolvency?

ASIC Indicators of insolvency

The ASIC has published a very detailed list of indicators of insolvency. However, some of these indicators are uncommon and/or only apply to larger businesses.

Common indicators of insolvency for small and medium businesses

By far and away the most common indicator we see that a business is in financial difficulty, is that the business is not paying required amounts to the ATO on time. However, this is not the only common indicator of insolvency we see and the following issues may also indicate your business is in financial difficulty:

• Your business has been making losses, or profits are deteriorating;
• You are having difficulty paying suppliers or other creditors, within their trading terms;
• Your business is not paying superannuation;
• The ‘current assets’ recorded in the businesses’ balance sheet are less than the ‘current liabilities’;
• You are unable to afford to pay yourself a wage from the business;
• You are having difficulty getting finance or cannot get finance, from a reputable financial institution; and
• You are borrowing money from family or friends to pay business debts or a significantly relying on credit cards and short-term finance to fund business operations.

What can you do?

The worst thing you can do if your business is in financial difficulty is nothing or just keep doing what you have been doing. If you ‘do’ this, things are unlikely to change.

The best thing to do is to get professional advice. At the first instance this may be from your accountant, to discuss possible profit improvement strategies. You should also consider getting advice from a professional insolvency advisor about options available including business turnaround and the risks associated with your businesses’ financial position. This is where we can help and we specialise in assisting businesses in financial difficulty with options other than liquidation or voluntary administration.

Contact us for advice and assistance

If your business is experiencing any of the above issues, the best time to seek assistance is now, so please contact Pearce & Heers at our Brisbane or Gold Coast offices for an initial obligation-free consultation.