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SMEs continue to face challenges in the current financial market due to inflation, increased cost of living and post COVID-19 impacts, an insolvency practitioner warns.
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Financial management critical amid rising insolvencies, says insolvency expert
12 July 2024
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11 minute read
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Senior partner and insolvency practitioner at Hall Chadwick, John Vouris, said there have always been challenges and hurdles small businesses have had to face, yet there are more insolvencies than ever.
“Over time there have been recessions, there have been global economic crises, there has been the .com, boom bust. There are always external issues,” he said.
In present and past economies, industries facing the most economic challenges include construction, accommodation and food services – all of which make up a large portion of companies facing collapse.
Along with the pandemic, Vouris said inflation, the cost of employment and the cost of products have been the largest contributing factors to the fall of businesses within these particular industries.
“The construction industry has gone boom, bust, boom, bust. The construction industry in New South Wales is hurting,” he said.
“With restaurants, a lot of money is spent on fit-out and together with rents and lack of clientele, this is killing the restaurant game.”
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Within the insolvency industry, multiple options and services can now be offered to struggling businesses, such as safe harbouring and business restructuring, rather than opting for liquidation.
Advice from ASIC states small businesses need to understand what may be causing problems and issues and why financial pressures may be arising.
Keeping business and financial records will lead to a better position to monitor the progress or operations of the business, which can aid in avoiding liquidation.
ASIC previously said small businesses can protect themselves by establishing that the business has sufficient cash flow and cash reserves for payable debts, ensuring actions are being taken for the benefit of the company as a whole and sourcing the right advice from a trusted professional.
It also stressed that businesses should check the eligibility requirements for restructuring where they are facing potential insolvency.
If the total liabilities of a business are under $1 million, restructuring may be a better alternative, said Vouris.
Vouris also said a focus on financial planning, perceived costs and outcomes and seeking professional advice where needed were critical elements in running a successful small business.
“For my mind, the major factor will always be bad management. They don’t look at the data and they don’t look at the figures, and now there’s no excuse.”
“There are no qualifications for being a director, and they don’t seek advice. They stick their head in the sand and think that everything will resolve itself,” he said.
If financial struggles or threats present themselves when running a business, being ignorant is the worst thing to do, Vouris said.
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