Businesses must be cautious

The next 12 months presents a great challenge to business owners of small to medium sized enterprises. There have been changes to the traditional cash flow patterns businesses have been accustomed to. Some industries are experiencing a slump in demand, others are experiencing a surge in demand and in both instances working capital will be stretched.

It is already evident in current insolvency statistics that there appear to be more business failures occurring and this also presents a challenge to the businesses that survive with bad debts on their books.

It is an opportune time to reflect on the trends we have observed that have attributed to the recent business failures. By doing so, management can consider their own business situations and ensure that they maximise the chances of remaining in business and not ending up an insolvency statistic.

The four most common themes in recent business failure follow:

• Investment in business expansion projects that have run over budget and have been funded from the bank overdraft and working capital (Inappropriate financing arrangements)
• Drop off in demand
• Directors changing the direction of their business into new areas they were not experienced in and losing money (Stick to your knitting)

Arising from this, we would strongly advise Directors of businesses to take caution.

• With an unpredictable 12 months ahead, stay in control
• Don’t rely on overdraft funding for capital investments
• Remain conservative in your business decisions to survive industry decline and one off forces and stick to their knitting

In the experience of Macks Advisory, early intervention and assistance by insolvency experts will greatly assist the chances of insolvent businesses working out any unexpected difficulties and surviving.

Macks Advisory can help businesses implement the voluntary administration process in order to help give business owners the second chance that may be needed to grow and survive. Members with queries are invited to contact Peter Macks at Macks Advisory on 08 8231 3323 or pmacks@macksadvisory.com.au.