Worrells, a national insolvency firm, explain how insolvency practitioners can help small-to-medium enterprises in response to Suncorp’s SME vs ME Report, which revealed almost two-thirds of small business owners’ wellbeing is suffering because their business and personal affairs were too intermingled.
The Report explains that personal finances are being used to manage cash flow, sole traders, and new business owners (less than three years) are not being adequately paid through their businesses, and that only 20 percent were making contributions to their own superannuation. Gary Dransfield, a spokesperson for the Suncorp Report acknowledged, “Business owners aren’t motivated by instant gratification or quick success. It takes at least three years for a business owner to feel confident and satisfied about their business’s profit generation and outlook”.
Michael Griffin, a Partner in Worrells Brisbane said, “as insolvency practitioners who work with many SME business owners on failed businesses every day, we agree with the comments arising from the survey.
“We see the effects from the substantial risks that business owners take on, which often lead to personal challenges resulting in exhaustion, and high stress and pressure on financial obligations. We see the effects in two separate and distinct areas: company directors, and sole traders.”
Worrells explains how they see the impact on small business owners’ wellbeing, when an insolvency event forces them to appoint a liquidator or a bankruptcy trustee.
Many company directors treat the company bank account as their own. In short, company funds are also being used to pay personal expenses. This creates a loan account that the director owes to the company. In a company winding up, liquidators are then forced to issue directors with a demand for the loan account’s balance. Other examples of intermingling include, a leased motor vehicle that a spouse uses solely for private use; a company credit card used for day-to-day personal household expenses; school fees and home renovations paid for by the company. This can result in the director filing for personal bankruptcy and risks their personal assets. Directors paying for personal expenses with company funds effectively erodes the corporate veil—which serves to protect directors, personally, from a company’s failure.
Griffin said, “Putting aside the blatant crossover of business funds and facilities as personal resources, when company directors don’t have a capital base as security for bank finance, their home or relative’s home is often insisted on as collateral for finance to be granted. The emotional stress carried in possibly losing that asset can be enough to question if being ‘in business’ is worth it.”
Worrells explains the position under a bankruptcy for sole traders who won’t find themselves in any more of an enviable position to those of company directors.
Without the benefits of the corporate veil, sole traders take a raft of risks, including ‘sole’ responsibility for debts, employees being paid, tax obligations being remitted, and landlord terms being met. The pressures of this cocktail of obligations culminates in the sole trader often being paid last, if at all. And often there is no clear sense of being ‘on duty’ and ‘off duty’.
Griffin readily acknowledged that many people go into business to be their own boss, and control their own future. “Our wish is for those sole traders and company directors to not mix ‘business and pleasure’ in the businesses books and records, which applies to credit cards, drawings, and any leasing assets (e.g. a vehicle) and more. Our wish is for the other 80 percent of SMEs surveyed to contribute to their own superannuation funds”, he said.
“Our purpose is to help SMEs in whatever phase of business planning or operations in conjunction with their trusted advisors. Our message to SMEs is to speak with an insolvency practitioner, like those at Worrells, to get the benefit of their insight and experience so they can be in business sustainably while preserving their wellbeing.”
Worrells has 26 Partners across Qld, NSW, ACT, Vic, SA, and WA who are registered insolvency practitioners. In fact, Worrells has more bankruptcy trustees than any other private firm in Australia. Its partners meet with advisors and business owners/individuals every day, as complimentary, to give unbiased advice and solutions to corporate and personal insolvency matters.
Interviews: Michael Griffin, Partner
07 3225 4360