Early Intervention Is The Key To Saving Your Business
Up to 80% of new businesses become insolvent and fail, most within the first five years of inception.
So how can you avoid possible liquidation?
For Australian business owners, the most likely route once cash flow has dried up and with the creditors knocking on the door, is to seek the help of an insolvency practitioner.
Directors who do not enlist the help of an expert early may find it virtually impossible to raise future credit. Directors can find themselves personally liable to the creditors of their companies. However, if a business owner acts early and gets the help to restructure it could mean that not only is liquidation avoided, but the business itself survives.
Early intervention is the key
The answer is simple: Business owners need to be brave enough to recognise the warning signs in particular pressures from creditors and accept outside restructuring professionals as well of the help of an insolvency practitioner. These are the companies that will survive.
When should you do it
In up to 90% of restructurings, most of the effort concentrates on the financial reconstruction – including debt restructuring – to keep the company solvent. Yet this fails to address the underlying operational problems that have contributed to the crisis. It is operational restructuring , change in management skills and getting help from specialized consultants that can mean the difference between complete failure or living to fight another day to slowly re-build your business.
To be most effective, an operational restructuring is best conducted within a solvent business, preferably in close collaboration with the primary creditors. Waiting for a company to hit a cash crisis is too late. A business needs “headroom” in which to operate.
Early indicators of potential trouble are becoming increasingly sophisticated. Banks watch “account behaviour” very closely (such as the balance deteriorating month on month). However the usual signs are simply pressures from creditors such as suppliers and the Australian Taxation Office.
Without aggressive early intervention and communication, however, including the use of turnaround experts to oversee an increasingly complex range of issues, organisations will continue to pay more for restructuring the closer they get to insolvency.
Early intervention can be a tough decision, especially if a company is still making a profit. But the facts are clear: if insolvency is to be avoided the future should not be about crisis management. Too often this will result in a company becoming insolvent leading to a possible liquidation and being broken up. Instead, it is about profit improvement through timely operational and financial restructuring of a still solvent organisation.
Some useful companies that provide turnaround and restructuring management: