Life Without Government Subsidies

Life Without Government Subsidies

Has your business been receiving Government grants throughout the COVID-19 pandemic? We discuss in this video how does your business adapt as the government grants cease while we are still in a pandemic situation.  We welcome Darren Vardy of SV Partners, an Accountant who specialises in Insolvency, Reconstruction and Business Growth Strategies.

No one can say that this COVID-19 pandemic hasn’t effected them in a personal or professional basis. As history has shown from the 1900’s, most pandemics last anywhere from three to five years. So we still need to look at our key issues in business and look at what the future holds.

Breaking even, but because of Government grants and current disruptions continue

A lot of businesses throughout the pandemic are most probably either breaking even or operating at a loss and only since the business has been receiving Government Grants. A business suffering from trading losses can open the Directors up to personal guarantees and trading guarantees, Directors can be personally liable for things like trade creditors, tax debts and superannuation. This also can expose directors to Insolvency Trading.

Common signs of insolvency include:

  • low operating profits or cash flow from the business
  • problems paying trade suppliers and other creditors on time
  • trade suppliers refusing to extend your business further credit
  • problems with meeting loan repayments on time or difficulty keeping within overdraft limits
  • legal action taken, or threatened, by trade suppliers or other creditors over money owed to them.
Some businesses will be unable to trade until we have consumer confidence Covid-19 is eradicated.

Some businesses who provide products or services, for example external educational programs that rely on schools booking them or event management companies who cannot organise functions. Consumer confidence is vital for these businesses and in the meantime these businesses need to look at options going forward. It may be the case that these affected businesses will need to look at what options they must either stay open or look at closing the business.

 During the pandemic these types of businesses may have depleted their working capital to restart or replenish the business to keep or hire staff, pay suppliers. Using the capital in the business to keep the fire alight will have a massive impact on whether they can re-business after multiple shutdowns.

What are the solutions?

As a business owner you need be able to know your numbers to make crucial decisions. Having up to date financial data will provide information that gives you the ability to see the financial position of the business. Every business owner should understand and be able to answer the following questions:

  1. What is your break even?
  2. What are your assets and liabilities?
  3. What is the extent of the debt?
  4. Do you have cashflow projections?
Are there options besides liquidated my company?

In short, yes, in certain circumstances, there are other options other than to liquidate the company. Depending on the size of the business and the debt. There is the Deed of Company Arrangement where a proposal is made by the directors during the Voluntary Administration, which has to be approved by creditors. A Deed of Company Arrangement is a legally binding document between the company, its creditors and the Administrator.

In January 2021 the Federal Government brought in a Small Business Restructuring Plan – In this new process this allows directors and management to remain in control of the company (under the supervision of a restructuring practitioner, as an example Darren Vardy). The purpose of this is to provide Directors and the company time to put forward a plan to creditors to pay off their liabilities, in full or in part, within a period not exceeding 3 years.

The number one lesson to abide by, is act and don’t leave it too late to take action. The key to small business is “If you fail to plan, you plan to fail”

If you feel that your business needs professional advice regarding your planning and knowing your numbers. Contact us at NGR Accounting or Insolvency Options (Darren Vardy) at https://iodebt.com.au/ for more information.