The Federal Government is planning to introduce welcome new laws that could help to save many small businesses from insolvency.
By Jim Vass
We’ve talked a lot in recent weeks about the difference between a ‘stressed business’ and one that’s on the brink of insolvency. There are key differences. BUT … the good news is that if a business recognises the critical warning signs early, it can, in many instances, be saved.
Now, there’s more support for struggling businesses on the horizon. The Federal Government is planning to introduce legislation which embraces many of the features of the US ‘Chapter 11’ laws that allow business owners with liabilities of less than $1 million to stay in charge while they deal with their debts.
This will give small business much needed breathing space when the s**t hits the fan.
Under the proposal, once a financial plan is put in place for the troubled business, creditors have 15 days to vote on it. If the plan gains majority support in a vote of creditors by value, the business continues and a nominated practitioner oversees the distribution of any funds to those who are owed money.
The proposal also mandates advisors to charge a ‘flat fee’, which will give business owners comfort that they can seek help without it costing an arm and a leg. However, advisors can claim a percentage of disbursements, once that percentage is agreed to by creditors.
The next few months are a critical time for small business. Many will be coming off government stimulus, such as Jobkeeper, as well as loan repayment holidays and Covid-19 lease negotiations with landlords, all of which may have buoyed them along for the past few months, or given them a false sense of confidence and security. Soon, these will end, propelling these businesses straight into the turmoil of the pandemic-related recession: both consumer confidence and spending are expected to stay low for many months.
Added to this, in several weeks’ time, businesses will also face the traditional ‘Christmas credit crunch’. Those who have not been able to build cash reserves to see them through this period could very well end up in financial trouble. With interest rates currently low, and the Federal Government considering loosening lending criteria in an effort to stimulate the economy, and this will make it easier to get finance, if you are comfortable doing so.
The sad reality is that many small businesses will fold over the next six months. Because they didn’t see the ‘writing on the wall’. Or they did see it … and ignored it at their own peril.
It’s important to realise there are about as many ways to save a business from insolvency as there are ways to skin a cat, once the problems are identified.
The current landscape is tricky to navigate, and changing rapidly. We are operating in a highly uncertain environment, so businesses really should seek the right advice.
Here at ATB Partners, we have a number of financial modelling tools which can help you to drill down into your business numbers to identify your most profitable areas – those you should focus on and grow. We are also currently trialing software that can predict future cash flow.
We have more than 60 years combined experience and have a track record of helping many businesses survive the GFC. We understand the unique challenges of small business, particularly in times of economic slowdown and recession and we can assess your business to give you a complete and thorough financial health check-up and some fresh ideas and solutions for getting through the coming months with both your business and your stress levels intact.