TOP FIVE SIGNS: KNOW WHEN TO FOLD

STRUGGLING business owners should learn when to cut their losses and close the business instead of waiting until they are forced into it, according to RSM Bird Cameron.

The accounting firm says owners will be more able to fulfil their salary obligations to employees by deciding to close the business before it fails completely.

An earlier wind up would also mean less time for debts to accrue interest, make it easier to secure buyers for company assets and deliver a better outcome for shareholders and creditors.

RSM Bird Cameron national head of turnaround and insolvency Andrew Beck says everyone benefits from an early decision.

"While the mantra for many business owners is to never give up, sometimes it can be smarter to quit now rather than hold on," Beck says.

"By making the difficult decision to shut the business down sooner rather than later, business owners can make the loss easier on employees, shareholders and other stakeholders, as well as protect their own reputation."

Financiers are more likely to recoup their costs if the company is wound up before it ends up in the hands of receivers, while suppliers can also take steps to replace the lost income with new customers.

Beck says liquidation, receivership or insolvency is also a stressful process for business owners.

"Their personal finances are not necessarily immune and at the very least they will receive regular and escalating calls from creditors chasing payment," he says.

"They can avoid this by getting financial advice immediately and taking steps to fulfil all obligations as soon as possible.

"Regardless of the circumstances, keeping an open line of communication with all stakeholders is the key to a smoother and less painful closure."

TOP FIVE WARNING SIGNS

Beck shares five key warning signs that your business is facing financial difficulty.

"These five warning signs are just the tip of the iceberg," he says.

"It is vital for business owners to identify issues early and decide whether they can be rectified in order to save the business.

"If the company is beyond saving, then you should make that decision as early as possible to minimise the negative effects of the shutdown."

 

1. Inability to pay debts: If your business cannot meet its obligations, then cashflow, the business' lifeblood, is likely to be stymied. Operating without adequate cashflow is unsustainable.

2. Poor profitability: If the business is not making enough money and repeated, strategic attempts to cut costs and improve efficiency have failed, then the business itself may be unviable.

Keeping a close eye on the balance sheet can let companies address these issues sooner rather than later and, if the downward spiral continues, then the business is not likely to be viable in the long term.

3. No access to finance: Banks and other financial institutions are unwilling to lend to struggling companies and their stringent application processes may uncover systemic issues long before you do.

If you are struggling to secure finance for the business, you may need to consider whether the business can continue to operate. 

4. High staff turnover: This can incur significant costs for the business and is a sure sign that something is going wrong within the organisation.

5. Inadequate financial records: If you're not keeping adequate financial records then you won't know when your business is struggling.

It also makes it difficult to see when to chase debtors and how to reduce costs.