Insolvency Australia has urged business owners to take advantage of the end of financial year (EOFY) period to “take stock” of their businesses by conducting a business health check and take action if there are any issues.
“This financial year has seen the insolvency ‘dam’ begin to break, which is why EOFY provides a good opportunity to truly assess how your business is going,” Gareth Gammon, Insolvency Australia Director, said. “We’ve spoken with a number of insolvency specialists who have similar advice: it’s the perfect time to ‘get your house in order’.
Patrick Coghlan, CreditorWatch CEO, said that insolvency primarily occurs due to problems with cashflow and, ultimately, a total lack of it.
“Therefore, get your ledger in order now to start the new financial year in the strongest possible position,” Coghlan said. “Now is the time to collect on outstanding payments to help your business better manage EOFY tax and superannuation obligations.”
Joseph Sleiman, from insolvency specialist firm Sleiman & Co, also shared that EOFY is a good opportunity to review a company’s tax lodgement compliance and make a plan for the new financial year to at least bring them up to date, as well as assess and control any tax or other debts.
“Keep up to tax with tax lodgements. It keeps you closer to your accountant, who may be able to advise you at an early stage to seek the assistance of a registered liquidator,” Sleiman said. “By keeping tax relationships transparent, there’s less chance of the director going too far over the line of incurring substantial tax and other debts, and thus causing potentially life-changing or irreparable personal financial damage.”
John Kukulovski, Partner with insolvency solutions and restructuring firm RRI Advisory, noted that EOFY is a challenging time – even for businesses that are doing well.
“It’s crucial that directors use this time to take stock of their company’s financial health and identify any opportunities and issues for the coming year,” Kukulovski said. “As insolvency professionals, we all too often see directors trying to take on new challenges without knowing how their company is holding up. You can’t chart a new course without a map!”
Ben Verney, Founding Partner at boutique insolvency and restructuring practice, Greyhouse Partners, pointed out that EOFY preparation generally means company accountants tidying amounts and balances in the chart of accounts for statutory reporting and tax accounting purposes.
“If this process helps directors look closely at the level of business commitments (liabilities) and compare these to short-term cash availability (liquid assets), then EOFY planning is a welcome opportunity to do so,” Verney said. “The risk of insolvency is decreased if this process is performed regularly. Preparing and analysing business cashflows and forecasts is optimal if performed monthly. Daily/weekly is best, and quarterly is reasonable.”
Frank Lopilato, National Head of Restructuring & Recovery with RSM Australia, also shared that setting up a clear cashflow budget for the financial year helps business owners gain a better oversight of their business and pre-empt issues that may arise from cash deficits.
“With the change and volatility of economic factors, it is critical that business owners maintain optimisation of their cost pricing to cover overheads and pricing accordingly, ensuring the company is profitable yet still maintaining competitiveness and demand,” Lopilato said. “In the tough economic environment we’re in, it’s further needed to boost these considerations by not optimising cost pricing but rather working to make a sale by improving marketing, customer relationships and the quality of goods and services.”
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