Operating a business can be extremely rewarding both financially and emotionally.
On the other hand operating a business can be extremely risky and stressful.
A “risky” business may contribute to the insolvency of a business.
What follows is an overview of how to prevent and mitigate against insolvency of your business.
How insolvency affects the directors of a company
If a company becomes insolvent directors may also be declared bankrupt. The most common reason for bankruptcy of a director is that financiers have required directors to provide personal guarantees before they will lend to the business.
As personal guarantees are often necessary to secure funding or grow a business, directors are XXXX proactively avoid insolvency.
Indicators to use to avoid insolvency
Consider the following factors to avoid insolvency:
- Establish and work to a business plan and make sure that plan includes forecasts;
- Ensure that your accounting systems are providing you with the information you need;
- Regularly review underused costs and eliminate unnecessary costs;
- Impose strict credit control and debt collection procedures; and
- Ensure adequate capital reserves by having either cash reserves or access to borrowings;
Indicators that may alert to a pending insolvency
In our experience the following factors may be indicative of a pending insolvency:
- Personal overspending;
- Poor cash flow and lack of cash flow forecasts;
- Poor internal accounting procedures and financial record keeping;
- Continuing in loss making activities;
- Constant accumulation of debt;
- Outstanding creditors of more than 90 days;
- Inability to access finance;
- Unpaid tax and superannuation debts; and
- Lack of action to overcome any of the above items.
Running a business often brings challenges and reward but sometimes it can also present a risk of insolvency and bankruptcy. It is therefore imperative that business owners consider the following:
- Ensure that the business you are in is making and not losing money;
- Make sure your internal procedures are up to date and efficient;
- Eliminate unnecessary costs; and
- Do not put personal assets at risk.
Pavuk Legal can assist you with legal advice in relation to your business. We can also assist you with negotiating the terms and conditions of your personal guarantee to limit your liability and can fully explain the consequences of signing the personal guarantee and advise you how to protect your assets.
We can further provide legal advice regarding the options available to you if your business becomes insolvent and work with the directors of troubled companies to contact creditors to negotiate arrangements which avoid the need to go into liquidation or administration.
We also help creditors recover monies owed by companies placed into administration by:
- Pursuing debtors overseas;
- Enforcing guarantees;
- Freezing assets held by debtors
- Identifying and reversing uncommercial transactions so that money can be clawed back
- Identifying and reversing preferential payments made so that all creditors share equally.
Furthermore, we can advise you and structure your asset protection strategy to ensure your wealth is not at risk if you provide a personal guarantee in the future.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
To purchase your own copy of Nobody Else’s Business please follow the link http://www.nobodyelsesbusiness.com.au/
For the full range of Legal Services that Pavuk Legal offers please go to: www.pavuklegal.com/services/