Finding ways to manage cash flow to meet your business debts

- May 27, 2020 2 MIN READ

In his fourth article on helping businesses through the current economic climate, Mackay Goodwin CEO, Domenic Calabretta, looks at ways to manage your cash flow and meet your financial obligations.

Many businesses will have calculated their exposure and reviewed ways to save costs and still find that their finances are falling short to maintain a viable business. Once you realise that things are still going to be tough, it really is worth consulting your financial advisor, accountant or a firm that specialises in restructuring as soon as possible.

There are still options available that could see you back to business as usual, and consulting a restructuring or insolvency expert doesn’t necessarily mean you are at the end of the line.

Equity Capital Raise

The effects of the pandemic have been so sudden that otherwise healthy businesses now find themselves contemplating insolvency. In these circumstances, it is worth looking for an investor. While things look dire now, your books may have looked great before COVID-19 and will again in the future. This means, it is an attractive business for investors.

Informal Creditor Arrangements 

Changes to legislation mean it is much harder for creditors to recoup their money through legislative means, which gives businesses a great opportunity to try and negotiate temporary or ongoing payment terms that will assist cashflow.

Your creditors may also find themselves in the same situation, but thankfully the Australian Banking Association also announced on 20 March they are pausing on seeking repayments for small business loans, which should give most businesses a bit of breathing space and some room to negotiate terms.

The key is to talk to your creditors early and be frank and open — also be mindful they may also be suffering, so be fair and reasonable in your discussions.

Safe Harbour Protection

 Safe harbour protection provides directors with a chance to restructure the business outside of a formal insolvency appointment. Safe harbour provides protection from insolvent trading offences, for directors if the restructuring is unsuccessful, and the company ends up in liquidation.

To be eligible for Safe Harbour protection, the company must meet the  following requirements:

  1. Books and records in order and a financial position determined;
  2. Compliance with employee and tax reporting obligations;
  3. Employee entitlements must be up to date;
  4. Advice is obtained from an appropriately qualified advisor;
  5. The Directors must properly inform themselves of the company’s financial position;
  6. The Directors must develop, implement and document the restructuring plan that is likely to lead to a better outcome as compared to the alternative of an immediate wind up administration, or process of undertaking a Voluntary Administration.

The advantage of Safe harbour over the Government’s recent insolvent trading relief is that it offers protection beyond the 6-month period. 

In my next article, I will look at some of the more technical aspects of business restructuring such as transferring assets to a new entity (pre-pack), voluntary administration and Holding DOCAs, and liquidation, which sadly will be a reality for some.

Mackay Goodwin is offering several free advisory activities for businesses who find themselves in trouble. It has also released a downloadable business survival pack. It is also providing an initial free consultation with businesses,  and to assist the business community its staff have committed to providing two hours of their day free of charge to businesses for the next six months.

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Now read this:

How to steer your small business through tough economic times


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