Put simply, a cash flow shortage means a business is spending more than its available working capital and if steps are not taken to resolve the issue in a timely manner, you could find your business past the point of no return.
Issues such as ongoing losses and mounting creditors (including ATO debt and superannuation) are clear warning signs you should not ignore, and have real potential to affect the future viability of your business.
So when does your temporary lack of cash flow become an endemic shortage of working capital?
The answer is not black and white. In fact, it can be quite complicated to pinpoint exactly when the line is crossed.
Seeking professional help as early as possible will mitigate the risk of your company failing. And there will be more options to save the business if you act early.
An accounting professional will look out for a number of indicators to determine if your company could be facing insolvency. Some of the indicators include:
- Dishonoured, post-dated cheques or payments;
- Suppliers insisting on cash delivery terms;
- Special arrangements with creditors (particularly if the terms are not met);
- The inability to produce timely and accurate financial information of the company’s financial performance and position, and make reliable forecasts;
- Unpaid group tax, payroll tax, workers’ compensation premiums or superannuation contributions;
- Letters of demand, statutory demands and court processes for outstanding debts;
- Creditors unpaid outside of trading terms;
- Liquidity ratios below one; and
- Ongoing trading losses.
If the company is facing insolvency, an insolvency practitioner is best placed to explore the available options with you, and the earlier action is taken the more likely it will be possible to find a turnaround strategy that will avoid any formal action.
Pitcher Partners has facilitated many success stories by assessing the company’s specific circumstances and applying a plan which may include refinancing, raising fresh funding, business restructuring, changing the company’s activities and/or strategy, administration or liquidation.
The key to survival is prompt action. If your business is facing any level of financial distress, seek professional advice without delay.
Pitcher Partners has a team of experienced specialists who can quickly identify your company’s situation as well as formulating options and opportunities to enable you to move forward by maximising returns and minimising risks.