Is This Happening to Your SME? Warning Signs You Can’t Ignore

Categories: Debt Small Business, Tax
20 October 2015

Having to reduce your working hours, lay off staff or worst of all, put up the “closed” sign for good doesn’t happen overnight. But for too many Australian small businesses and medium sized enterprises, the warning signs are either not noticed or are ignored until it is too late to do anything about them.

So here are four things to look for that might indicate that your business could be in trouble in the future – if you don’t act now.

Debt mountains

Debt is one of those things that seems to multiply much faster than seems rationally possible. But this compounding effect can be crippling for a company as initial bills are supplemented by interest charges and late payment fees.

Managing your cash flow on a predictive basis is crucial to making sure you don’t effectively have to pay your bills twice when interest and fees are added on top. It might be an unpleasant job, but you need to set aside a few hours every month to forecast your likely expenses versus your incoming cash. In this case, ignorance is definitely not bliss.

Taxing times

It is accepted wisdom that the less interaction SME’s have with the ATO, the better. However, this is not necessarily true in all instances. Businesses in Australia operate under the pay as you go (PAYG) system, where taxes are paid quarterly or monthly in instalments, rather than in one big “lump sum” at year end.

This helps smooth out cash flow to assist businesses with their day to day operations. But if your business falls behind, few SME managers realise that you can call the ATO and enter into a negotiated payment arrangement that works for both parties. This approach also means you could avoid the heavy penalty and interest charges that the ATO has the power to levy.

Spiralling payment times

Often, business bankruptcies flow like dominoes, with each business in the value chain falling in turn. That means that if you notice your customers increasing the time it takes them to pay their bills to you, you should take steps to recoup as much cash as possible, quickly.

This is particularly true if your business relies on other businesses for revenue, or if the majority of your customers are from a particular industry that is struggling.

Closed doors

Banks make their billion dollar profits by lending a pool of money, at fairly thin margins, on a massive scale. That means their credit risk and reporting criteria are the most sophisticated and strict in the country.

If you’ve been denied finance or a bank loan, that could be a sign to take a close look at your business to spot the gaps and weaknesses that you need to fortify before they cause your business to spring a leak.

To help figure out whether your SME is well placed to weather any unexpected shocks, we invite you to give our Scott Partners team a call to schedule an appointment.