By Tina Zawila
The financial headlines this week have led with the news of struggling overseas banks and bail outs, and this always sounds incredulous to ordinary Australians. Firstly, let me say that the banking industry overseas is very different to the regulated Australian banking industry. And in this article, I won’t be analysing how banks can “go broke”, but rather how you and your small business can avoid the pitfalls of debt.
Let’s start with understanding your financial position and the level of debt you or your business is carrying. Do you have loans with banks or other financiers or lenders? What about credit or store cards? Do you know the interest rates, fees and charges on each facility and can you manage the repayments based on the term of the loan/s? It’s not unusual for small, start up businesses to use alternative lenders to fund the business, however, often this comes at a significant cost and a short timeframe which can put considerable pressure on the business. It’s important to seek professional advice based on your own circumstances, however generally it’s a good idea to move away from expensive, short-term debt facilities as soon as possible.
How is your business performing? Profitable businesses can and do go broke, so it’s not enough to be recording a profit, you need to have sufficient cashflow to meet your debt repayments as well as your operating costs. That’s where you need to be looking at a Cash Flow Statement as well as a Profit and Loss Statement on a regular basis. Some of our clients, review a daily or weekly report on the cash requirements of their business!
What about the ATO? Are you up to date with your lodgements and payments for GST, PAYG and Income Tax? The ATO is Australia’s largest creditor, and their debt book has grown considerably over the last three years (during COVID-19). The ATO is now becoming more demanding in respect to collecting outstanding debts, and they can pursue Directors personally for certain outstanding taxation obligations. Therefore, the ATO is not a creditor that you should ignore or defer. If you are behind in your compliance obligations or have a debt owing to the ATO, seek professional advice from a qualified Tax Agent. We can help you manage this debt, liaise with the ATO on your behalf and avoid any nasty surprises or unintended consequences.
In a period of rising interest rates and difficult economic conditions, it’s vital that businesses actively manage their cash and debt positions. It can be the difference between thriving, surviving or demise. You also do not need to go it alone! Seek professional advice and look for opportunities to reduce debt and improve cashflow and profitability.
Call our professional team today at UHY Haines Norton on 4972 1300.