Business guide to Coronavirus

8 essential steps to take if your business is in distress

We know the impact of the last bushfire season and now COVID-19 is causing significant distress to business. Indeed, for many businesses, cash flow has slowed to a trickle or even stopped completely.

Here are eight essential steps to take to deal with this type of crisis in your business:

1. Be honest with yourself

Lots of people in financial distress stop opening bills and stop answering phone calls. The first step to getting through a squeeze is admitting to yourself you’re in a tight spot.

2. Do your accounts

It’s essential you find out your financial position. You need to know what you owe, to who, when the major bills are going to fall due and how much they are going to be. Look especially at rent, loans and tax.

You also need to check who owes you money and if they’re going to be able to pay. Making sure your books and records are up to date is also critical in protecting you later if things get worse.

3. Are you already broke?

This is a tough question to face – but you need to. The law says you are insolvent if you can’t pay your debts as and when they fall due. If you can secure more funds from a lender or an investor that will pay those bills, then you are ok.

But, if not and that’s the spot you’re in, you must stop trading and appoint a Registered Liquidator, or else you will face even greater personal liabilities. You might think you can’t get more broke than broke, but there can be serious consequences.

4. Talk to your bank and lenders

Here is where it helps if you’ve got your accounts done. Being able to sit down with your bank and show them you know the situation you’re in and being able to discuss the outlook is the best way to gain their support.

Most banks have made public announcements about their willingness to support their customers in these tough times. Remember, it is absolutely in your bank’s best interest to have you trade through tough times and remain a customer in the long term. They are likely to be firmly on your side.

Need Financial Support?

Get free professional phone advice on business turnaround, restructure, corporate advisory, liquidation, receivership, insolvency and bankruptcy. We have an expert team from our partner operating 8am - 6pm Monday to Friday AEST to support your enquiries.

To access your call, simply join Business Australia as a free member.

Already a member? Get started
 

5. Talk to the tax office

Tax bills are one of the biggest costs a business pays. It’s important to remember that GST revenue and income tax withheld for employees isn’t your money. But we also know it’s quite possible you don’t have what’s required to pay the bills when they fall due.

It’s important you keep all your tax declarations up to date and accurate. If so, you will find the ATO is also supportive of trying to get you through a tough period. 

The ATO has now issued special advice about help that's available, which you can find here.

6. Talk to your suppliers

They are probably facing a tough time as well. And they will certainly know others amongst their customers doing it hard. Have an open discussion with them and work out what you can agree together. 

Just like banks, it’s in your suppliers’ interests to keep you going and remaining a customer over the long term. But do understand they too might be squeezed for cash right now.

7. Get qualified help

Yes, it’s likely to cost you some money that you don’t feel like you have now but getting qualified help is likely to save you money in the long run.

Most local accountants and lawyers don’t know their way around the complexities of insolvency law. So you need to talk to a specialist.

ARITA Professional Members are fully qualified in this area, are covered by insurance for the advice they provide and are regulated by the government. Which means you can trust their guidance.

ARITA Professional Members usually offer a free and confidential initial consultation to help you understand your financial position and what options you have available.

ARITA Professional Members include specialised accountants who might be Registered Liquidators (who look after businesses in distress) or Registered Trustees (who look after individuals facing personal bankruptcy).

If you think your business can trade through with a little help, then ARITA Professional Members are the very best people to talk to. 

Indeed, engaging them may give you a ‘safe harbour’ protection to stop further personal claims against you if your business does end up going broke.

Find out if an adviser is an ARITA Professional Member

8. Look after your mental health

Having your business in financial distress is a crushing experience. It’s likely to be personally hard on you. It’s important to ensure you are aware of, and look after, your mental health, because the most important thing is that you get through these challenges yourself.

Don’t be afraid to ask for help if you need it. Chat to your doctor, check out Beyond Blue or call Lifeline if you are in urgent need of help.

Don’t wait!

It’s important to realise a lot of people are in the same boat now, and generally through no fault of their own. So, don’t see this as a personal failure. But do get proper, qualified advice as quickly as you can.

 

The views expressed in this article are those of the author and do not necessarily represent the views of Business Australia.

John Winter

Chief Executive Officer, Australian Restructuring Insolvency and Turnaround Association (ARITA)

John took on the role of CEO at ARITA in February 2014. He was previously the Head of ACCA Australia and New Zealand. ACCA, the Association of Chartered Certified Accountants, is the global body for professional accountants.

How can we help?

Business Australia has a range of resources for your business. Get support managing your employees, reducing your business costs, accessing business funding, and marketing your business. 

Already a member? Get started