Undertaking A Financial Health Check

Covid has again bought on a lot of uncertainty for most and in particular, businesses in Melbourne. Accordingly, we thought it would be good to put some points down for those that may be having some business and financial concerns, and more than importantly, to show people that there are many options and help if needed.

In light of the ongoing covid restrictions in Victoria and the minimal government support that has been provided on both a state and federal level during Lockdown 4.0, we believe that it may be a good time to undertake a financial health assessment of your business.

Below are some points that you may want to consider:

Undertaking a Financial Health Assessment

The following are key steps in the process when undertaking a financial health assessment:

  • Prepare a cashflow forecast/budget to assess the cashflow requirements of the business and potential cash burn over the next twelve months;
  • Analyse all expenses associated with the business to identify any opportunities to reduce costs and promote increased profitability within the business;
  • Review the creditor position of the business to ensure that all creditor accounts are maintained within required trade terms. An assessment should be made within the cashflow forecast to ensure that these outstanding creditors can be met from ongoing trading of the business;
  • Examine all finance facilities within the business to ensure that these are fit for purposes and funding is available to meet any cash burn that is forecasted; and
  • Consider the risks associated with the ongoing business, for example risks of further snap lockdowns, further boarder closures or general economic downturn.

Key Warning Signs

Some key warning signs to look out for during these difficult times, include:

  • Tax Debt – over the course of the pandemic you may have incurred tax debt that hasn’t yet been repaid. Whilst the ATO has being lenient to date, it is expected that their debt collection process will begin to ramp up and you could soon be facing.
  • Debt collectors – trade suppliers may begin to pressure you through the use of debt collectors and other debt recovery mechanisms such a Statutory Demand.
  • Financiers – may decline to renew or extend your finance facilities that allow the business to continue operating. Alternatively, they may seek further financial information or accommodations such as an increase in security provided in respect of the facility.
  • Pressure from landlords – as there are no protections provided during lockdown 4.0 business may start to experience pressure from landlords for unpaid rent.

If your business is in trouble, what can you do?

In the event that the business health check identifies concerns that your business is not going to be able to repay its creditors, finance facilities or meet any ongoing cash burn then immediate steps can be taken to understand the options available to the business and limit the potential personal liabilities that may arise whilst trading insolvent.

These options include:

  • Informal workout/restructure – this involves negotiations with your key creditors, landlords or financiers to allow for payment deferrals, payment arrangements or other debt compromises that could be beneficial to both your business and these third parties. This will allow you to buy some further time to recovery from lockdown 4.0 and the business to rebuild its cashflow. A key creditor in this category may be the ATO, who based on our experience have been willing to enter into payment arrangements with businesses over long term periods.
  • Sale of business – a going concern sale of the business may be achievable in the current market and would allow for its outstanding liabilities to be repaid and obligations such as property leases to be assumed by the purchaser.
  • Orderly winddown of the business – sometimes the correct decision may be to cease operating the business and accordingly, an orderly winddown may be achievable where you are able to repay all of the debts of the Company and/or obtain releases from obligations such as property leases.
  • Formal restructuring – there are a number of options available to formally restructure the business including a voluntary administration, small business restructuring plan or liquidation.

By understanding the options that are available to your business, you are able to make informed decisions to protect the business and your personal position.

There are no silly questions. If you would like any assistance in conducting a financial health assessment on your business or to discuss your individual financial circumstances, please contact our office on 1300 904 946