Liquidation notices in Australia can help insolvent Australian businesses to pay their debts. However, as a business owner, you should avoid a situation where you need their help. Read on to know the tell-tale signs of a business on its way to insolvency.
1. Failure to Clear Superannuation Payments
If your business struggles to pay employees’ super entitlements, it indicates approaching insolvency. Until 2019, Australian businesses could escape this practice by hiding the facts and misleading authorities. However, since 2019, things have dramatically changed owing to the introduction of the Single Touch Payroll system.
Your business has to assume now responsible for paying employees their super entitlements timely and reporting the payments. If there are any discrepancies, your business will likely be slapped with penalties on top of the outstanding super entitlements.
In the long run, this would further weaken your business’ finances. It may lead to a situation where your business cannot go on without a helping hand from trustees in Australia.
2. Working Capital Is In The Negative
The level of your business’s working capital is a surefire sign of whether it can cover short-term debts. To calculate it, subtract your business’s current liabilities from its assets. If the result is negative, it suggests a lack of cash flow, which in turn points to a potential inability to pay debts.
To give your business the best chance of positive working capital, you should:
- Refrain from using your working capital for financing fixed assets
- Bill customers early through prompt invoice generation
- Pursue fixed asset refinancing
- Consider taking long-term debts
3. Missing Business Tax Payments And BAS Lodgements
PAYG, GST, and BAS Lodgements – for Australian businesses, these are the three major concerns on the taxation front. The ATO considers failure to comply with BAS lodgements as a red flag. The best thing to do if you are struggling to pay taxes is, to be honest with the ATO.
Through honesty and transparency, you may be able to convince the ATO to make tax debt payment plans more flexible for you. This would allow your business to pay tax debts more comfortably. Not taking this route is most likely to end in ever-increasing debts and penalties issued by the ATO.
4. You Are Relying on Personal Funds For Bailing Your Business Out Of Trouble
Businesses in their nascent stages may require their owners to spend from their pockets. However, if your business has been around for some time and you still spend personal money on it, you would be right to worry. More often than not, this is a clear indicator of its poor financial health.
The worst thing about this practice is the risk that the business won’t recover from its dire financial straits. In this scenario, your business will likely reach insolvency, and you would need liquidation notices in Australia to bail you out.
5. Customers Refusing to Pay Owing to Dissatisfaction
Businesses want to satisfy their customers. However, customer dissatisfaction is possible if a financial cloud is looming large over your business’ head. Loyal, long-term customers are especially likely to turn against the business if they don’t get the quality of products or services they expect.
Of course, a poor collection process may also impact the timeliness of customer payments. If this is the case with your business, it’s time to turn to automation and enhance your collection process’ efficiency. However, changing things around will likely be more challenging if customer dissatisfaction is the core issue.
6. Creditors Frequently Chasing Payments
It is a creditor’s job to chase payments if a business fails to pay its dues in a timely manner. However, if a business keeps failing in its debt repayments, creditors are almost sure to hound it to recover the money. Keep an eye out for the aged payables balance. Your business’ solvency may be doubted if it is recording a steep rise.
It’s fine if creditors are infrequent with their payment recovery reminders. It’s also essential to maintain transparent and honest communications with creditors. For instance, if you know your business is under financial stress, discuss it with them. Like the ATO, they may revisit the payment terms and make changes to allow for more flexible payments.
Conclusion
Consider insolvency a possibility if you notice one or more of these signs creeping into your business. Thankfully, trustees in Australia allow insolvent businesses to pay their debts and recover. However, this doesn’t mean your business shouldn’t try to stay solvent. So, start identifying the problems before they drag your business down, and solve them.
If you fail to solve them and your business goes into insolvency, contact a company specializing in insolvency solutions. This can bridge the gap between your business and experienced insolvency professionals who can help you secure the finances you need.
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