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Happy new year … for some it's more a feeling of relief than joy!  For many business owners, trading conditions continue to present challenges.  Be prepared to take action to stay in the Black in the new financial year by keeping a watchful eye on the warning signs of trouble.

Happy new year … for some it's more a feeling of relief than joy!  For many business owners, trading conditions continue to present challenges.  Business insolvency statistics remain alarming, with 2,014 businesses entering external administration for the March 2014 quarter, 21% of those in Queensland.   Business owners need to vigilant and continually looking for the warning signs of trouble ahead.

Be prepared to take action to stay in the Black in the new financial year by keeping a watchful eye on the warning signs of trouble, these can include:

  • Payment time by your debtors – according to Dun & Bradstreet, average debtors' days outstanding is currently at 54 days.  Whilst this is a long period, there are many businesses that have debtors' days outstanding in excess of 54 days.  If your debtors' days outstanding starts to move up further, you should review your debtor collection processes and take action.
  • Stock turn – is your stock turn slowing down and your investment in stock increasing?  Perhaps you need to consider some stock specific promotions to move the slow stock lines to avoid them become obsolete and reassess re-ordering cycles.
  • Are your suppliers trying to impose harsher payment terms than what you've traditionally agreed with them?  This could be a warning that the supplier is under some financial difficulties.
  • Have you got a few customers who make up the bulk of your sales income?  Whilst a handful of large frequent customers are easier to manage in the good times, when things are tough, this could escalate into a real problem.  What would be the situation if one of those key customers discontinued their trading with you or, worse still, couldn't pay their outstanding obligations?
  • Have you got key suppliers?  If you notice some changes in the suppliers' characteristics, that could be a sign to research sourcing your product from alternative suppliers.  Changes in suppliers' attitudes may well indicate that the supplier has some problems, or that you are not as important to them as you once were.
  • If you're having difficulties in managing cash flow to meet your BAS and employee superannuation payments on time, this is a sign to review your working capital funding arrangements.  Proactively discussing options with your banker is a far better action then to get offside with the ATO.  Laws make directors of companies personally liable for amounts that have been withheld and the payments have not been made on time to the ATO.

As experienced Advisors to a large number of business clients, we are well placed to alert you to these warnings signs and then brainstorm specific strategies you can deploy to turn around the key areas of business concern and support you in implementing them and measuring their success.

A critical strategy to have in place to reduce exposure to counterparties in touch times is to have the full protection offered by the Personal Property Securities Register (PPRS).  The Personal Property Securities Act (PPSA) is now fully operational.  Unfortunately, a lot of business owners aren't achieving the improved level of security by registering some transactions on the PPSR, primarily relating to 'Retention of Title' arrangements.  Enhanced security via PPSR also applies to some leases and a wide range of other business activities, including:

  • sale of goods on consignment;
  • assets stored in someone else's possession;
  • livestock on agistment;
  • loans (including loans to associated entities and associates);
  • service entities; and
  • intellectual property assignment.

There have already been a number of significant court cases in Australia testing the new Act in practice.  Considerable sums of money have been lost by the businesses that paid for an asset but had not registered their interest on the PPSR.  As a result, they've lost those assets to a secured creditor.  In most cases, if the business that had paid for the asset, had registered its interest on the PPSR, it would not have had a problem.

Please contact your usual Hanrick Curran Advisor or call 3218 3900 and ask for Tony Hunt if you would like assistance in navigating your business through tough times.