Business turnaround


01 Jul 2022

When successful businesses fail


3 min

Cash may be gone but cash flow remains king!

Picture this: Your client’s retail business is booming. They’ve tapped into an underserviced market, demand is growing, and they’re barely able to keep up. They should be profitable right? Yet your client is struggling. Why?

As insolvency practitioners, we see businesses founded on great ideas fail every day. The main reasons are:

  1. Lack of proper record-keeping, including the co-mingling of personal and business expenses.

  2. Failure to allocate resources effectively—every function and role within a company needs to row the boat in the same direction.

  3. Not understanding the importance of cash flow—discipline in collecting debts and having the ability to fund stock to meet demand and in today’s environment having regular stock supply.

Cash flow is key to any business and while cash pays the bills, many business owners are unable to produce a cash-flow statement that reflects and budgets incoming and outgoing cash amounts to assist them to manage the business’s day-to-day operations. 

There are no qualifications or degrees required to start a business. As such, many business owners learn on the job, meaning key financial management skills are often lacking.

Key takeaways all advisors should give their clients:

  1. Effective accounting systems provide valuable information needed to make decisions. Spend the time setting them up and talk to an expert about the best products and systems to use for your business.

  2. Be aware of the insolvency indicators. These allow you to better understand your business and identify earlier in a business slow period any need to reduce expenditure.

  3. Use strong cash-flow management disciplines in your business. These will better help you to weather any bad period and in good times help you to build any reserves needed in future tough times. A good strategy is to invest those monies in assets you can easily convert into cash rather than spending excessively on lifestyle items such as expensive cars.

  4. Identify the key stakeholders in your business. They may be your customers, or a key supplier or financier. Once identified, proactively manage those relationships through effective and regular communication.

With the Australian Taxation Office (ATO) collection activity ramping up, cash-flow management to service deferred debt is of significant concern for many businesses.

If you’d like help speaking with any of your clients who may be in trouble, please contact your local Worrells office. Our principals are here to help with a complimentary and confidential discussion.

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