Let’s be honest – running a business is hard work. It requires a lot of determination, learning and, more often than not, a strong stomach for failure. But sometimes, no matter how much of an effort you put into the business – it just doesn’t work. You find yourself in a cash crunch. You can’t pay your bills. You’re not sure where to turn – it’s a tough spot to be in.
To be able to stay in business, many organisations decide to put cost-cutting measures in place – and that’s actually a smart move. Eliminating discretionary spending should be the prime consideration. If you were planning on painting your building, buying new equipment, or hiring additional employees, wait. Only if a particular expense is essential to carrying out a crucial marketing or diversification plan should you go ahead.
Unfortunately, cutting costs may well involve the difficult decision to lay off people or reduce their hours. This may be a difficult step to take, but if the alternative is closing your business, it’d be better to keep some people employed than for everyone to lose their jobs when the company shuts the doors.
However, if the bills that you’re struggling to pay are ones related to payroll and superannuation, that should raise some alarm bells – maybe your business is in deeper trouble than you imagined. In this case, perhaps, it may be time to talk to an expert regarding your next move.
As Insolve panelist Ginette Muller explains, “It is important to pay your debts on time – and there can be consequences of not making arrangements with your creditors to vary the payment terms. Particular attention should be made to paying staff entitlements and superannuation on time. Providing you have paid these bills, you can seek the protection of Safe Harbour. Importantly, approach a qualified expert, who will be able to provide you with the right advice – they can help by getting you on the path to new funding, negotiating repayment arrangements or safe harbour protection while you work out a turnaround plan.”
There are some responsibilities that need to be considered to fulfil your duties as a business owner and the risks your business faces. By law you must have certain insurances in place – Workers Compensation cover if you employ people is a big one.
Robert Cooper, Director of CPR Insurance Services, says, “As a business owner, you owe a duty of care to protect other people around you. It is the liability exposures that you need to keep at the very least. If you are in the Professional Services area, the most important coverage to have is professional indemnity insurance. Being a “Claims Made” cover, you have to have a current policy in place to cover any errors or omissions made in the past arising from any advice given for a fee. Then there is public and products liability cover that can affect all businesses but in particular, the tradies, manufacturers, retailers or hospitality businesses who could be held responsible for injury or property damage to a third party. Such third parties can include your landlord, your customers or just members of the public that encounter your business in some way. If your business is in a precarious financial position, and a client claims damages for a loss they suffer for which you are found to be liable for, your business could be pushed into insolvency meaning you can no longer trade. Additionally, as a director, you could be personally liable if you failed to protect the assets of your business and something goes wrong. ”
Making the decision not to protect the assets of a business is a huge gamble, particularly in the liability area. It is also unfair to other stakeholders such as customers and employees who rely upon you to look after their interests. You could possibly survive if you were burgled, suffered storm damage or a fire, but very unlikely if you were sued by a third party for some kind of negligent act, that could wipe out – not just the business, but you personally.
Situations of financial distress don’t fix themselves, and there’s a point of no return. However, many businesses have been able to find their way back into the light, with the right guidance and advice from qualified experts. All you have to do is reach out, and reach out as soon as you can.