Why your business needs a Will as much as you do

If you own a business you probably make near-future plans on a daily basis. However, not many business owners think ahead into the distant future. It might seem irrelevant today, but having a solid exit plan for your business is one of the smartest things that you can do as a business owner.
 

If you own a business you probably make near-future plans on a daily basis. However, not many business owners think ahead into the distant future. It might seem irrelevant today, but having a solid exit plan for your business is one of the smartest things that you can do as a business owner.

Just as your last Will and Testament is designed to make your wishes known, provide for your family and protect your assets, an exit plan for your business ensures that its life ends well for those involved.

Nothing lasts forever, so it’s important to make sure that the inevitable (eventual) closure of your business—or the end of your involvement in it—allows you to move on to live your next dream, not to suffer in residual debt.

At the end of the day, the best thing to do is to keep your business in prime condition, increasing the likelihood that you can sell it on when it’s time to lay it to rest in your own life.

To better prepare you for the future, we’ve put together a few tips to help keep your business attractive to (near or distant) potential buyers and to make sure you avoid the alternate ugly ending: bankruptcy or liquidation.

Structure your business as a company, not a sole trader

When you structure yourself as a sole trader you and your business are a single entity, meaning you share a single Tax File Number (TFN) and Australian Business Number (ABN).

This is a simple system to set up, but there’s definitely a downside. As a sole trader, you and your business are one and the same, so if the business suffers a loss you are personally liable, nobody else.

When your structure yourself as a proper company your business becomes a separate entity with its own TFN and ABN. While it costs a bit to administer it is usually a better set up. If your business suffers a loss only company assets can be accessed, and potentially seized, not your personal assets. Unless you have given a personal guarantee.

If your business encounters difficulties at the end of its days, operating under a company structure can protect you and your family’s assets. As always, get advice from a qualified accountant or lawyer.

Avoid Director’s guarantees 

Simply put, a Director’s guarantee is a personal guarantee that is often signed by directors when a company enters into an agreement. However, there are hidden risks in signing these kinds of documents that all business owners should know, including:

  • Making you personally liable if your company cannot pay its debts.
  • Putting your personal assets at risk.
  • Having to personally pay extra costs and charges, such as debt recovery agent fees and legal costs.

Insolve Panel Member David Levi recommends you avoid signing these kinds of agreements where possible, to ensure your personal finances and assets are protected. If you come across these kinds of guarantees, make sure you get legal advice or consult with a member of Insolve to better understand your rights and obligations.

Strengthen your business with modern, up-to-date systems

When it comes to modernising your business to keep it ready for the market, installing suitable, up-to-date systems is an investment that will pay off both in the short and longer term. The reality is that all businesses produce and rely on a lot of information, from financial records to employee details and regulatory requirements. It’s impossible to keep track without being well organised.

By using up to date systems and accounting programs you can expect an increase in accuracy and speed by reducing human inputs (and potential errors). These systems also can give you up to date information quite readily, often on devices like your phone. This will make your business more attractive to potential buyers moving forward, as people are more likely to want to take over the reins if it is clear what they are buying!

Keep your eye on cash flow 

As any professional understands, good cash flow control is paramount to any business. For growing your business it’s crucial, for reselling your business it’s equally as important. By increasing and improving its cash flow your business is better positioned all round, to thrive and to accept new opportunities as they arise.

Insolve Panel Member, John Shanahan, understands that for most businesses cash flow is integral to success:

“Cash flow is king, and you’ve got to understand where it’s coming from, and in any business you need to know it’s coming in, and when it’s coming in, to plan any payments you’ve got to make.” Says John.

To improve your business’s cash flow, consider:

  • Selling unnecessary assets to increase cash in your business and to save on costs.
  • Leasing new assets as opposed to buying if appropriate. (but first ensure you understand the lease liability)
  • Preparing regular cash flow forecasts to quickly identify any potential cash flow shortages.
  • Investing surplus cash wisely.

Make sure you use the Personal Property Securities Register 

Most business owners will say running a business is challenging.  If you’re unable to collect full payment up-front, selling goods can be risky. If you register an interest in the goods you’re selling on the Personal Property and Securities Register (PPSR), you will have a better chance of recovering the debt if your customer doesn’t pay or goes broke. This is also applies if you lease or hire goods, or sell goods with a retention of title clause.

The PPSR should be part of your credit management policy framework to decreases business risk when providing trade credit.

Insolve Panel Members understand PPSR requirements. “Simply put, the register shows you whether someone is claiming an interest against goods or assets. By using the PPSR you can also make a registration, so others know when you have retained an interest in goods you have supplied on credit terms. The PPSR let’s you say to the world ‘This is mine and you can’t do anything with it.’”

One of the biggest benefits? If your customer doesn’t pay or goes broke, you are in the best position to get your goods, or their value, back.

If you feel your business is nearing the end of its good days, seek advice from trustworthy advisors early

Not all business stories enjoy a happy ending, but yours can if you seek professional and consistent advice from trustworthy advisors.

As Insolve Panel Member Roland Robson knows a thing or two about why getting quality advice early is one of the best things you can do as a business owner. Especially when you feel as though your business is nearing the end of its good days.

“It’s like with anything, whether it be financial or medical … the earlier the better. It’s imperative that you talk to somebody early, you get a resolution, and you get a strategy to get out of the situation [that] you may be in,” Roland says.

As Roland knows due to his experience in working with companies over the years, early intervention always gives the proprietor and their advisor more to work with when it’s time to shut down or resell a business.

“[By] leaving it too late, then we don’t have anything left to work with. We have no assets remaining to try to negotiate with creditors with, we’ve got nothing left. The only options then are liquidation or a bankruptcy scenario,” Roland says.

If you’d like to better plan for the future of your business, it may be time to work with a trustworthy advisor.

With years of experience in industry, Insolve’s experts can give you options best suited for you and your business. Enquire online or call 1300 669 914.

DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

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Insolserve Pty Ltd, PO Box 2, Grange, QLD 4051 ABN 97 623 054 679

Privacy Policy | Terms & Conditions

DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

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Insolserve Pty Ltd, PO Box 2, Grange, QLD 4051 ABN 97 623 054 679

Privacy Policy | Terms & Conditions

DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

James Flaherty

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