Small Business Bookkeeping

Small Business Insolvency

According to ASIC figures, during February 2012 a record 1,123 businesses were placed in administration, Dynamic Business has reported.

This is the highest single month on record, which highlights the difficult economic climate small business owners currently face.

Whilst the individual reasons for so many company failures will be varied, it is worth noting that even profitable businesses can go bust due to cashflow issues, tax debts or other unexpected circumstances such as a large debtor failing to pay their bill. In light of this, business owners should have knowledge of at least the basics of corporate insolvency, so they can protect themselves should anything go wrong.

The first thing every director should know is that they need to keep a track of their company’s financial position. Insolvent trading is illegal, and ignorance due to poor record keeping is no defence.

This means that if a business incurs debts whilst insolvent the directors can be held personally liable for debts incurred and may even face criminal charges. This can occur even if the director did not know the company was insolvent due to failing to keep records

Another issue that directors must be mindful of is tax debt. Many business owners aren’t aware that the tax office has the power to force their company into liquidation, but it is true that in certain cases, the ATO can do this in order to recover unpaid PAYG taxes. Usually, this will happen after several attempts at recovery, but it is important that business owners are aware of the risks if they owe money to the ATO.

For a director of a company that has an outstanding tax debt, there is the added pressure that the ATO can hold directors personally liable in certain situations where PAYG taxes remain unpaid, or where a company later goes into administration after paying a tax debt.

Whilst it is an issue that carries a certain amount of doom and gloom, it is important that business owners understand the risks. Hopefully, most business owners will never have to go through the difficulty of insolvency but if they do, they should seek expert advice as soon as possible.

Are you on the verge of bankruptcy? Call us to put things right on 1300 60 70 60

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Small Business Payments Slow

The cash flow of Australian firms is improving, with businesses paying their bills more than three days faster than 12 months ago, Dun & Bradstreet have reported.

However, despite the year-on-year improvement and a fall from the 2009 peak of 57.4 days, payment days remain substantially above pre-GFC levels.

D&B’s March quarter 2012 Trade Payments Analysis, which examines more than eight million current accounts receivable records, reveals the average payment time for Australian firms is 52.6 days.

This figure represents a slight increase on the prior quarter and remains well above the five-year low of 51.4 days, which was recorded in the third quarter of 2007.

Business can’t pay its bills on time? Call us on 1300 60 70 60 for confidential expert advice

Small Businesses Trading at a Loss, Need Advice

The number of companies trading at a loss increased in the 2009-10 year, according to the latest figures from the Australian Taxation Office, SmartCompany has reported.

The figures come just one day after Australian Securities and Investment Commission figures showed the number of companies entering external administration reached its peak during February 2012, a sign the number of loss-making companies could have increased further over the past two years.

They also appear as the Government considers a recommendation to introduce a “carry back” loss scheme, which would allow small businesses to use profits from previous years to offset a loss.

“I wouldn’t say this is a small increase,” Institute of Chartered Accountants general manager Yasser El-Ansary said. “Even a fraction of a per cent can mean anything from 5,000 to 10,000 businesses, or more. That’s still plenty of businesses that would have moved from a position of paying tax to making a loss.”

The ATO statistics for the 2009-10 year reveal a trove of details, including that individuals declared a total income of $605.6 billion, up by 3.7% from the previous year. Individuals also claimed $29.7 billion in total deductions, down 6.1% from the previous year.

The company statistics also reveal some sobering figures. Companies reported total income of $2,212 billion, down 2.6% from the previous year.

And the number of non-taxable companies – companies that aren’t making a profit at all – increased by 5.1%. The number of companies trading at a loss increased from 34.7% to 35.1%, an increase of 8,741. However, El-Ansary points out the data is two to three years old, at a time when the economic climate was “extremely different”.

“Businesses at that time were doing it very tough, compared to the climate we’re in at the moment. Things have improved marginally for small businesses, but during this time it was right at the peak of the fiscal stimulus program.”

Yet company insolvency figures are at record highs, and the Housing Industry Association figures released yesterday showed new home sales are at their lowest in nearly two decades. Collapses remain high in the retail and construction sectors.

El-Ansary says while it’s impossible to know whether the number of loss-making companies has increased in the past two years, the environment remains harsh for SMEs.

“When you look at the insolvency statistics or you go out into the community and talk to small business owners, the picture becomes quite clear.

“People are no longer able to access cheap funding sources. And, unfortunately, it’s very concerning because there is no end in sight for the softness in many of these sectors.”

The ATO figures also reveal some disappointing numbers for property investors. There were 1,751,679 investors declared, equalling out to about one in seven taxpayers. Although the number of losses decreased, there were still $4.810 billion in losses.

The statistics also revealed self-managed superannuation funds paid 70% less tax than the previous year, down from $1 billion to $287 million.

Keeping Good Records Can Save Your Small Business From Bankruptcy

Why did small businesses go bankrupt in this downturn? They didn’t plan for catastrophe and they failed to keep good financial records. Here’s a guide to the risks your business should consider and prepare for in order to thrive no matter what, according to Entrepreneur.com

Whenever there’s an economic downturn, many small businesses go bust. Why? Because they didn’t plan for the crash.

The name of the game is risk mitigation. Big global companies engage in enterprise risk management, examining every type of risk in their planning and devising strategies for surviving the worst-case scenario. Small business owners can learn a lot from the process.

Some of the factors to look at include:

Internal company risk: Employees who embezzle or that important sales manager who leaves suddenly

Key man risk: The business revolves around a “key man’s” personal relationships with clients, and this person could leave the company or die

Currency risk: The dollar weakens or strengthens in relation to other currencies, impacting an import or export business

Supply-chain risk: Vendors go bust, goods fall off a shipping barge, or the price of gas shoots up

Facilities risk: A fire or theft at your store, office or warehouse

Acts of God: Floods, earthquakes, damage from hail

Civil unrest: Everything from Occupy Protests blocking access to your storefront to government overthrow to full-scale war

Once each risk is identified, business owners need to run what-if scenarios.

Do you have enough money saved? A disaster plan for how your business would run if your home base was destroyed or your electricity went out for weeks? Are you properly insured? Do you have safeguards in place to prevent employee theft?

Four years into this downturn, there probably isn’t a small business owner around who isn’t aware that things can go wrong. But do you have a plan for what you’d do if business got worse? Now’s the time to prepare for the next curveball life will throw at your business.