26 October 2022

Post-pandemic times are tough, but when is it time to close the doors on an ailing business?

| Katrina Condie
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unpaid invoices folder

Unpaid GST debts and employee superannuation are signs your business may be headed for insolvency. Image: File.

Many Canberra businesses are bouncing back after the COVID lockdowns, while some business owners are still trying to pick up the pieces, doing all they can to avoid closing their doors for good.

Some financial experts say it might be time to “draw a line in the sand” and walk away from the emotional and financial stress of an ailing business.

RSM in Canberra managing partner and director Frank Lopilato says business owners are often too embarrassed to reach out and ask for help, so they keep pushing on, sometimes finding themselves racking up massive personal debts.

“It’s human nature for people to do all they can to avoid failure,” he says.

“I know of many businesspeople in Canberra really struggling right now, but they don’t want to give up.

“They don’t want to close the doors on a business they have built up, and they don’t want to let their staff or their community down.

“But if the business is on a downward trajectory, often it’s time for a fresh start – to draw a line in the sand so people can move on without the sleepless nights wondering how to get off the wheel.”

RSM in Canberra senior manager Adam Cormack says many Canberra hospitality operators, after struggling to make ends meet for more than two years, were recently forced to close their doors once the government’s COVID assistance came to an end.

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He says one bar and restaurant’s income substantially decreased during the pandemic, but the business managed to stay afloat on the government’s stimulus measures.

Once the company emerged from the COVID-19 lockdowns, the business’s income started to increase but not to pre-pandemic levels, forcing the owners to seek financial advice.

“As a result of outstanding debts incurred during the lockdown period and other longstanding ATO debts, the company was faced with serious insolvency concerns,” Mr Cormack says.

“We were engaged as liquidators and began the process of working with the company’s stakeholders and secured creditors to sell the business assets in situ.

“We were able to provide a successful outcome minimising any loss to the landlord for unpaid rent and negotiated a sale which resulted in a substantial payment to the secured creditors.

“The sale also included a condition whereby the employees and their entitlements were assumed by the purchaser mitigating any employee claims.”

Adam Cormack, Frank Lo Pilato

RSM in Canberra senior manager Adam Cormack (left) and partner Frank Lopilato advise business owners to seek help sooner rather than later if they are in financial trouble. Photo: Liv Cameron.

Mr Cormack says business owners shouldn’t ignore the early warning signs and a financial “health check” will provide a realistic financial diagnosis.

If stock is always low and businesses are unable to pay their GST or struggling to pay employees’ superannuation on time, the signs are there to seek financial advice.

And if suppliers are requesting cash on delivery or reducing their credit terms, there could be a perception the business is considered high risk.

Mr Lopilato says if cash flow doesn’t improve and debt continues to mount, the situation typically gets worse, and quickly.

“That’s why we encourage people to seek expert advice early in the financial distress process,” he says.

“We work with people with very limited funds to understand their options and help get them the best result in a difficult situation – to make the limited resources available go further.”

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He says bankruptcy or insolvency can happen to anyone – and most suppliers, landlords and employees will be more understanding if you open the lines of communication early.

“By getting guidance from us before things spiral out of control, we may be able to sell the business as a going concern, liaise with the landlord about finding another tenant to take over the site or create payment plans with creditors.

“If voluntary liquidation is the best step, we can guide business owners through the process to make it as pain-free as possible – so they can regain control of their lives and start planning for a bright new future.”

RSM in Canberra‘s team of restructuring and recovery experts, business advisors, and registered liquidators offers practical and honest advice, and a free initial assessment so business owners can make confident decisions about their next course of action.


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