It’s no secret that as liquidators we’ve seen our fair share of businesses in trouble. Yet in many cases these companies and their directors trend towards making the same critical mistakes that lead to their insolvency. While they range from critical statutory errors to poor judgement, all the 10 common mistakes below can place your business into serious trouble.

Falling Behind on Taxes

Now the pandemic leniency period has ended, the ATO has resumed its debt collection activities and recently begun calling its largest debtors demanding repayment. Too often we see that business leave their tax obligations to the last minute to the detriment of their solvency. This is especially true for superannuation obligations, which the tax office prioritises when seeking out debtors.

Poor Lines of Credit

The adage of having to spend money to make money still rings true but having affordable access to that money is just as important. A secure and reliable line of credit can save a business from relying on scrupulous last minute high interest credit providers to save them from failure.

Not Understanding the Numbers

Numbers are the business. Not keeping adequate books and records and not fully understanding how they translate the health of a business is a serious and common error many directors make. If you can’t tell how your business is doing, then you can’t see the trouble coming. 

Failing to Account for Seasonal Shifts

Many companies that become insolvent rely on a “when it rains, it pours” revenue strategy, but fail to adequately delegate their successes to compensate times of downturn. While the pandemic has made this harder to do, not finding new sources of revenue and putting aside money for quiet months causes many businesses to fail.

Not Managing Payables and Receivables Effectively

Much like not knowing numbers, not managing accounts properly leads to an array of problems. Small businesses especially tend to have close relations with their customers and suppliers and can be more lenient when it comes time to collect. Not consolidating accounts until payments start to bounce is a critical error.

Putting Good Money to Bad Use

Spending money unnecessarily is one of the best ways to sink a company. Hiring unnecessarily, poor allocation of internal expenses and having poorly defined ROI goals means that the lifeblood of the business gets used up when it doesn’t need to be.

Impatience

SMEs often try to grow too quickly. As a director, failing to start a business with clear goals and rushing too quickly to expand and overinvest spreads the otherwise niche capabilities of a smaller company too thin. Implementing short term strategies when businesses require long term thinking is a common reason for insolvency.

Directors Being Everywhere at Once

Many directors feel as though they need to be the universal tool in their business. But just like any other employee, their capacity and expertise does not expand to all areas. It is far more important to hire and use the strengths of others to build your business than to try and fill those gaps yourself.

Not Marketing Correctly

Overmarketing and under marketing are common causes of business failure. Spending too much on strategies that have poor ROI or not utilising existing resources to market organically means that the business is not effectively reaching its customers and not generating revenue.

Disregarding Experienced Advice

Many directors who start businesses do not have all the skills necessary, and that is completely fine. Failure arises when they do not lean on their associates and advisors to provide critical insight into their situations, or when they do not seek professional help and try to put out fires themselves in times of trouble.