Corporate Insolvencies: Big Problems For Small Businesses

In a report published this week by the Australian Securities and Investments Commission, 79% of insolvencies were experienced by small businesses with 20 employees or less. And the grand majority of those, approximately 85%, had assets of $100,000 or less proving once again that small businesses are not safe from insolvency, liquidation or closure.

In total, 8,354 reports were analysed by external administrators and the results remain on par with findings from the previous two financial years. There is no escaping risk of closure or insolvency unless you manage your business well.

There are many causes to insolvency and unsurprisingly, in the 2015 report, poor cash flow or extreme spending was cited as the top cause of the small business insolvency problem.

Focusing on some of the reasons ‘why’ can go a long way in helping to avoid the issue in the first place.

Lack of credit
Not having access to credit can be an issue for businesses of all shapes and sizes. If you rely on credit to stay afloat, then it is important that you have the ability to use it when you need it. No credit can mean payment issues and supply delays influencing other areas of the business.

Inaccurate accounts
Not keeping on top of your business accounts can affect your budgeting. Do you know exactly how much money you have in the bank today? Do you know what expenses you have to pay this month? A successful company needs to keep detailed records, so you know where you stand at all times.

Problematic cash flow
If your cash flow is problematic, then you may have issues in the long term. Cash flow is one of the most important aspects of a healthy and successful business, and your cash flow struggle may ultimately affect your creditors and suppliers.

Personal withdrawals
Taking too much money out of the business for personal emergencies is a surefire way to create issues both personally and professionally. It is best to separate your personal and business accounts from day one and only withdraw reasonable and manageable amounts.

All business owners, regardless of the size of their business, must be aware that insolvency is a risk. If cash flow is becoming a real problem for them, it is important to seek help and advice as soon as possible, as you know. When a potential client presents to you with a looming insolvency issue but the figures are too small for you to deal with, you can help them by referring them to invoice Money. We’ll take care of them and together we can save another business from closure.