As a business owner, there are countless worries that may keep you up at night. Some fears are ungrounded and are more like unsubstantiated worries. In a way, they can help to keep you alert of important issues. They are small worries, focus on competitors, staff, potential growth areas, are you doing enough marketing, are you competitive, etc. They are almost comforting concerns, signs of a ‘healthy’ business.
But then there are other concerns – bigger issues. Issues around cash flow, over-stressed relationships with suppliers, disengaged leaders, late payments, out of date reporting and bookkeeping, and even the big one – am I going to lose my house? The big issues become nagging ailments, they become critical indicators of the trouble ahead. And just as someone with ailing health knows that they need to see a doctor, so does the business owner recognise the need to see a lawyer. Similarly, the longer you put it off the more severe the potential consequences.
When is it time to get legal advice for your business?
There are some clear warning signs that your business needs to engage a lawyer if you haven’t already. Bear in mind that every business is unique so the below should be considered more of a rough guide.
Negative operating cash flows.
Negative cash flow is when your business has more outgoing than incoming money. While that is not always indicative of a struggling business, prolonged periods of negative operating cash flows are. If you have found yourself living off a credit to maintain a lifestyle that your business could usually foot the bill for, it is a pretty obvious sign that something is amiss.
Delaying payments of creditors.
Pandemic aside, there is always a temptation to delay payments in business. Holidays from loans etc help to free up liquid assets and grease the wheels so to speak. While this might be an appealing and sensible option, that ‘pound of flesh’ is still due. As a business owner, you know that the accounts will be called due and you will need to cough up if you want to stay in business.
High and increasing gearing (debt to equity).
More the realm of business accountancy, high and increasing gearing is an indicator that the need for legal help is fast approaching. Anecdotally a gearing ratio of over 50% is considered high risk and more susceptible to bankruptcy. Do you know your gearing? It might be time to find out.
Your ATO history
Any business needs to be aware of its obligations to the ATO. Does your business have an unpaid tax debt? While it’s not uncommon to defer a tax debt, you need to be aware that you are simply ‘kicking the can’ down the road. If you have an outstanding bill due to the ATO, it is indicative that your business is in a fragile position.
Other less significant signs that your business needs a lawyer.
Team leaders feeling overwhelmed.
Burnout and low enthusiasm are commonplace in any business. Distinguishing the underlying cause will help guide your response, i.e. a change of culture or even the need to hire a legal professional. Finding your key staff skipping meetings, refusing calls, and avoiding difficult tasks may indicate a response to the knowledge of a potential insolvency status.
Affect on Family & Relationships.
In an ideal world, your work life would be confined to work and home life to the home. But we are humans and the line has become increasingly blurred. Many SME’s have intertwined the business with the home. It follows that the stress of business carries into the personal lives of business owners and strains relationships.
While this in itself is not necessarily indicative of a deteriorating business, constant disintegration of once-strong relationships can indicate that business stressors have become unmanageable. Discussing sources of stress, the possibility of financial hardship due to business failure often helps business owners to realign their thoughts, prompting them to protect assets and seek legal advice to minimise the personal/ family cost of business failure.
Sajen Legal is here to help, not to judge
If you’ll permit us to stretch the patient/doctor metaphor one last time, like doctors we are also beholden to our client confidentiality. We have dealt with clients who have been embarrassed about contacting us. This may sound absurd, but in reality, we are all great at instigating our defence mechanisms when confronted with situations we would rather not deal with.
It is important to remember that early legal assistance and intervention is key to minimising the impacts that occur when your business is failing. Losing homes, personal assets, prison time, and lots more are far worse than a conversation with a legal professional behind a closed door.
If you’re staying up at night for the wrong reasons, now is the time to reach out to Sajen Legal. Get Started – HERE
Further reading and references
https://sajenlegal.com.au/news/business-law/asset-protection-for-your-business/
https://sajenlegal.com.au/news/business-law/how-do-you-determine-if-a-company-is-insolvent/
https://sajenlegal.com.au/news/business-law/personal-liability-for-company-directors/
https://sajenlegal.com.au/news/business-law/options-for-your-insolvent-company/
https://sajenlegal.com.au/news/business-law/director-insolvent-company/
https://sajenlegal.com.au/news/business-law/asset-protection-for-your-business/
https://www.investopedia.com/ask/answers/121814/what-good-gearing-ratio.asp
https://worrells.net.au/newsletter-articles/key-warning-signs-for-a-business-in-trouble/
https://www.accountantsdaily.com.au/columns/12230-identifying-the-early-warning-signs-of-insolvency