By This is a challenging financial and economic climate for companies, businesses, and families. If you want to outwit, outplay, and outlast the competition (or simply survive) – cash(flow) is king.

Tough times do not last, but tough, proactive, and informed directors do. Why? Because they understand the importance of objectivity, do not bury their head in the sand, and value seeking independent legal advice, when it matters.

Developing Resilience and Immunity

This is a short list of some of the symptoms that may be causing cashflow headaches and/or impending cashflow paralysis, and some remedies to start building resilience. 

If you believe that you may be experiencing one or more of these symptoms, please contact Evatt Styles now.

What are the symptoms of cashflow crisis?

Profitable and unprofitable companies can experience cashflow issues. Here are some of the symptoms (and it is not as obvious as it seems):

• Late or missed payments on debts, to employees (incl entitlements) or suppliers；

• Aged debtors greater than 30 days past payment terms;

• Overreliance on credit cards, and or lines of credit;

• Missing opportunities to grow the business;

• Increase in disputes (such as complaints, demands, statements of claim and/or judgments);

• reduced customer, client and employee satisfaction;

  
  

• Time spent on dealing with putting out fires, rather than on or growing the business;

• High interest payments and poor working relationship with bank and/or limited alternative finance options;

• Inability to raise further equity capital or finance;

• Late tax lodgements or payments;

• Excessive write offs within the business and/or taking on work that might not be feasible; and

• Frequent use of formal/informal debt plans or deeds of forbearance of debts.

What are some potential remedies?

This requires understanding the business, then triaging, and prioritising the symptoms based on severity.

Some of the remedies include:

1. Implementing urgent debt recovery systems and procedures - to reduce aged debtors;

   
   

2. Re-assessing existing work in the pipeline, status, timelines, contractual obligations and liabilities, resources – to deliver goods and/or services faster to facilitate payment;  

   
   

3. Re-assessing existing terms & conditions, terms of trade and agreements – to mitigate and reduce exposure to the business, where possible. But, also to offer flexible terms to encourage sales with qualified customers/clients, where possible and appropriate;

   
   

4. You need to be constantly aware of your company’s financial position and should not leave understanding the financial position of your company to the point where you sign off on yearly financial statements;

   
   

5. Look at opportunities to sell existing stock, inventory and products now – to generate cashflow or perhaps, short term debtor financing opportunities;

   
   

6. Consider commercial dispute resolution and alternative dispute resolution options – to resolve external and internal disputes before they snowball and/or escalate; and

   
   

7. Consider restructuring and insolvency options - to explore debt restructuring, personal liability issues and voluntary corporate insolvency options and to negotiate debts with creditors, if possible.

What could I do to prevent cashflow issues?

1. Explore opportunities to build strong relationships with banks, financial institutions and alternative finance options – to understand their key processes, considerations and to compare offerings, fees and costs with others; 

   
   

2. Clarify internal systems, organisational charts, duties, responsibilities, visibility of key data and improvement– to ensure that the relevant metrics for decision making on the company’s is up to date and readily accessible; 

   
   

3. Identify, audit, and improve that key data/information metrics. Those goals should be Specific, Measurable, Achievable, Realistic and Timely (SMART);

   
   

4. Identify skills and experience gaps in your business or within your internal structure – hire, restructure, or train accordingly. Diversity, trust, inclusivity, as well as strong skills and experience within organisations often result in good governance, finance and risk practices;

   
   

5. Explore insurance options and mechanisms/standards that help reduce those insurance premiums – that journey, compliance procedure and mindset can have a direct/indirect impact on the success of your business and upskilling employees;

   
   

6. Set SMART goals to:

   
   

   a. Build cash reserves and diversification of assets;

    

   b. Reduce borrowing, liabilities, minimise existing debts and explore commercially beneficial re-financing, where possible;

    

   c. Project cashflow fluctuations; and

    

   d. Establish targets for sales, deliverables, development, and sustainable growth.

   
   

7. Be SMART –

   
   

   a. Understand your business, your employees and clients/customers – to identify waste and opportunities to improve your goods and/or services delivery;

   
   

   b. Consider and work to a plan, a vision, a purpose, measure it, and then how to improve it;

   
   

   c. Ask for help and seek professional advice – regularly.

When should I see a lawyer?

If you believe that you may be experiencing one or more of the above symptoms - please contact Evatt Styles.

If these symptoms are not immediately addressed, it may result in one or more creditors acting first, which may be fatal for the company (or result in further expenses later which could have been avoided), and/or may result in personal liability against the director/officer. For example, with respect to an allegation of a breach of a director’s duty to prevent insolvent trading by company.  

Duty to prevent insolvent trading

Regulatory Guide 217 - Duty to prevent insolvent trading: Guide for directors is a useful guide to understanding section 588G of the Corporations Act 2001 (Cth).

In short, there is a duty to prevent trading and incurring debts if the company is insolvent. 

A company is insolvent if it is unable to pay its debts when they fall due.

That means considering whether the company is insolvent or will become insolvent because of incurring the debt – that is before incurring the debt.

What can I do now?

If you would like to make an informed decision on how to move forward, please arrange a confidential consultation with Evatt Styles.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to change. You should seek independent legal advice before embarking upon any course of action.