The lead up to Christmas can be a busy time in the insolvency industry.
Historically, the Australian Securities and Investments Commission (ASIC) statistics show that the period between September to December has some of the highest levels of corporate insolvency administrations.
Traditionally, retailers fare better during the festive season—while small businesses are most likely to fail. This is primarily due to a slowdown in revenue available for small businesses—but the costs to continue trading remains the same.
So with this in mind, how do you potentially avoid a visit from the Christmas Liquidator?
- Plan and budget
Planning and budgeting is essential to determine how much cash you need to make it through the silly season. To make sure you have provisioned for the worst, you need to ensure your budget:
- Realistically reflects external and internal factors…it’s not wishful thinking.
- Is detailed and comprehensive—all aspects of the business are incorporated.
- Recognises seasonal fluctuations.
- Consults with stakeholders.
- Provides for cash-flow forecasts.
- Allows for ease of comparison to actual.
- Reflects the enterprise’s policies and investment criteria.
Unless you can measure your results and plan for the business's future, you might find yourself getting a better return at the casino!
2. Cash is KING!
Businesses must have cash to survive—especially when your revenue is reduced but the bills keep coming. Just sending invoices and hoping for payment before Christmas is not good enough.
If you are dealing with other small businesses—chances are, they too, might experience cash-flow problems during the Christmas period and may delay payment. Get on the phone and push for payment. If necessary, engage a debt collector or lawyer to assist in recovering your debt.
Some people might not want to upset their customers—but what if your customer’s non-payment sends you to the wall?!
3. Control stock purchases and capital purchases
When cash is short, control your outgoings.
If possible, look at delaying any capital purchases and closely control your stock levels.
Any unnecessary 'cash burn' should be avoided during the seasonal 'down turn'.
If certain capital expenditure is required during the slow down—look at negotiating payment terms later in the New Year to improve your cash-flow position.
4. Talk to the bank
Having a 'war chest' available for those unexpected events may be the difference between survival and closure. But the key to a war chest is having it before you need it.
My experience is that you are unlikely to obtain a positive response from the bank to obtain an overdraft when you already have a problem.
Although other organisations on the market may provide short-term finance—it usually comes at a substantial price, given the likely risk of insolvency.
The message here is, get the funds before you need it and don’t be tempted to use it for unnecessary reasons.
5. Broker repayment terms with suppliers
Sometimes you need 'a little help from your friends' (or suppliers) in tough times. Speaking to your suppliers and negotiating repayment terms may assist you in managing your cash-flow problems.
Obviously, before starting to negotiate terms and incurring further debt, you should always consider any critical solvency issues in your business and your director obligations to avoid insolvent trading.
The last thing you would want to do is incur further debt with your suppliers with no capacity to repay those debts. This type of activity is likely to get you in hot water with the ASIC and any future liquidator. However, if your business is profitable and your business plan shows a road to recovery—speaking with your suppliers for extended or different repayment terms to get you through a tight period is an option.
If all else fails, contact your local Worrells’ partner to learn what options are available to potentially save your business from the Grinch that stole Christmas.