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12 signs a business is heading towards insolvency

  • November 12 2020
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12 signs a business is heading towards insolvency

By Cameron Micallef
November 12 2020

With just 50 days before key government stimulus packages are withdrawn, business insolvency is tipped to rise, according to an industry expert.

12 signs a business is heading towards insolvency

12 signs a business is heading towards insolvency

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  • November 12 2020
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With just 50 days before key government stimulus packages are withdrawn, business insolvency is tipped to rise, according to an industry expert.

12 signs a business is heading towards insolvency

Jirsch Sutherland’s national managing partner, Bradd Morelli, described it as crunch time for businesses.

“December 31 marks the end of the insolvent trading moratorium, temporary increase in the statutory demand threshold, the first tranche of JobKeeper 2.0 and, for some states, the commercial eviction moratorium,” he said.

“It’s vital that businesses don’t ignore the warning signs of insolvency – otherwise they could miss the window to take corrective action,” Mr Morelli explained.

He pointed out that directors could be personally liable for insolvency trading, meaning it is vital they understand the risks.

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Separately, the CreditorWatch October Business Risk Review shows that 14 of 19 industry groups recorded a decrease in payment times in the month, with many industries reporting consecutive month-on-month falls. 

However, it is not all good news for businesses, while they are beginning to generate cash flow, payment times still remain 157 per cent higher, on average, than October 2019.

“Falling payment times and administration rates would ordinarily be considered encouraging signs because they indicate that Australian businesses are generating the revenue they need to survive,” Patrick Coghlan, CEO of CreditorWatch, said.

“However, the fact that payment times remain so high above their 2019 levels gives the game away, while falling administration rates show that government stimulus packages have created a backlog of companies holding on to survival.

“When this support is withdrawn next year, we expect many of these businesses to shed their camouflage and shut up shop because they do not have the cash flow to survive on their own two feet.” 

Twelve warning signs your business could be heading towards insolvency, according to Jirsch Sutherland:

  1. Poor or no cash flow
  2. Can’t pay your bills
  3. Can’t pay staff wages or superannuation
  4. Poor quality books or records
  5. Net asset / (liability) position
  6. Losing clients
  7. Securing special payment arrangements with creditors
  8. Disputes between business owners and directors
  9. High staff turnover and lower competence
  10. Substantial bad debt write-offs
  11. Physical deterioration or poor appearance of your business premises
  12. Inability to access finance
12 signs a business is heading towards insolvency
12 signs a business is heading towards insolvency
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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