Head in the sand fuels regret

STRUGGLING business owners need to spot the warning signs early if they want to prevent their business from sliding into insolvency.

Money

STRUGGLING business owners need to spot the warning signs early if they want to prevent their business from sliding into insolvency.

Too many owners are overly optimistic and don't call for help until it is too late, an insolvency practitioner says.

"On many occasions, administrators are only called in when a company is virtually at death's door in the hope that a miracle can be performed," says Rob Naudi, a partner with insolvency firm Meertens.

"Frequently, it's too late and the only option is liquidation."

Naudi says business owners are often overly optimistic.

"They are always hoping for that blue sky, just waiting for the economy to turn, they remain optimistic that something is going to save them but it just never comes," he says.

There are several warning signs for business owners to watch out for. These include increasing debts, overdue tax and super payments, legal demands from disgruntled suppliers, mounting stock levels, lack of maintenance on assets, high staff turnover and problems getting finance.

Anyone who sees these signs should seek help, Naudi says.

"They should, in the first instance, be talking to their accountant. If they have any hope, it's often because they have a great accountant that has recommended them through to us."

Acting early can turn a business around. "More often than not, it's a case of getting someone across the line to recapitalise the business. The owner may have a lesser share but the jobs get saved and the owner still has an interest. If you leave it too long you get a fire sale of the assets."

The Australian Securities and Investments Commission says an insolvent company is one that is unable to pay all its debts when they fall due for payment, and there are serious penalties for allowing your company to trade while insolvent.

"If dishonesty is found to be a factor in insolvent trading, a director may be subject to criminal charges, which can lead to a fine of up to $220,000 or imprisonment for up to five years, or both," ASIC says in its insolvency guide for directors.

"A common reason for the inability to save a company in financial distress is that professional advice was sought too late. Don't have your 'head in the sand', hoping that things will improve - they rarely do."