Get help early: Insolvency probe reveals that small businesses leaving it too late to seek professional advice
[fusion_builder_container hundred_percent=”no” hundred_percent_height=”no” hundred_percent_height_scroll=”no” hundred_percent_height_center_content=”yes” equal_height_columns=”no” menu_anchor=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” status=”published” publish_date=”” class=”” id=”” background_color=”” background_image=”” background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ video_mp4=”” video_webm=”” video_ogv=”” video_url=”” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” video_preview_image=”” border_size=”” border_color=”” border_style=”solid” margin_top=”” margin_bottom=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=””][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ spacing=”” center_content=”no” link=”” target=”_self” min_height=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_image_id=”” background_position=”left top” background_repeat=”no-repeat” hover_type=”none” border_size=”0″ border_color=”” border_style=”solid” border_position=”all” border_radius=”” box_shadow=”no” dimension_box_shadow=”” box_shadow_blur=”0″ box_shadow_spread=”0″ box_shadow_color=”” box_shadow_style=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=”” last=”no”][fusion_text columns=”” column_min_width=”” column_spacing=”” rule_style=”default” rule_size=”” rule_color=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=””]
Small businesses experiencing financial distress are leaving it too late to seek professional advice, industry professionals have told the Insolvency Practices Inquiry.[i]
In October 2019, Australian Small Business and Family Enterprise Ombudsman Kate Carnell announced the inquiry to examine the insolvency industry and “identify areas where practices can be improved and recommend changes to the system to achieve fairer outcomes for all parties involved”. The inquiry was instigated because small business owners revealed that they perceive the insolvency process as opaque, disempowering and poorly managed, resulting in less than ideal outcomes for relevant stakeholders.
According to its terms of reference, the inquiry is set out to investigate:
- “The existing insolvency system through the experience of small businesses;
- The degree of transparency of the governance structures, processes and costs of practitioners involved in the insolvency process including legal experts, valuers, investigating accountants, administrators, receivers and liquidators;
- How the insolvency of a small or family business may lead to bankruptcy for the owners; and
- How the established framework impacts the practices and fees of insolvency practitioners.” [ii]
Apart from stories submitted by more than 300 small businesses, the inquiry has received constructive feedback from insolvency practitioners, industry groups, lawyers and financial advisors.
According to a discussion paper issued by the ombudsman on 20 December 2019, the clear message sent by insolvency professionals is that small businesses experiencing financial difficulties frequently ‘ignore the signs of financial distress, hoping or believing that things will improve, until it is too late.” Therefore, remedies that could have been implemented to turnaround the business had the owner promptly sought professional help often elapse due to delayed response.
This finding corroborates the observation of John Winter, chief executive of the Australian Restructuring and Turnaround Association, that “by the time the vast majority of small businesses reach a decision to appoint an insolvency practitioner, they are generally well beyond saving.”
The ombudsman commented that “it’s crucial that small and family businesses experiencing financial difficulties understand they don’t have to go it alone. Rather than toughing it out, lean on a trusted advisor.”
“The sooner small and family businesses get help, the more likely it is they can achieve a turnaround or restructure.”
At Collins Wentworth, we understand that small businesses can face many challenges, whether it is a cash flow shortage or the collapse of a key supplier or customer. These risks are magnified given the Australian economy is under downward pressure from significant negative shocks, such as the bushfire disaster, the coronavirus outbreak, disruptions in international supply chains, and the uncertainty in international trade environment.
In an environment of heightened market volatility, small businesses must stay vigilant and monitor financial performance and financial position carefully. This is why we have compiled a list of warning signs to watch out for and the methods you should adopt to detect and address these problems.
If you discern any signs of financial distress, it is critical to seek professional help early on so that you may have an objective and comprehensive understanding of the situation at hand and the options available, and make an informed decision regarding the way forward.
The team at Collins Wentworth are experienced in business financial matters. If you have concerns about the financial position of your business and wish to know more about how we can assist you, contact us today.
[i] See https://www.asbfeo.gov.au/inquiries/insolvency-practices
[ii] See https://www.asbfeo.gov.au/sites/default/files/documents/Inquiry%20terms%20of%20reference.pdf
[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]
