As part of people2people’s ‘expert series’, we have invited debt management specialist Angela McDonald as a guest blogger to provide some advice on how best to manage the concerning rise in ‘Zombie Businesses’.
Angela is the Managing Director of Optimum Recoveries, a multi award-winning Australian-based company that specialises in B2B commercial debt prevention, management and recovery.
Should we all fear the walking dead?
Australia is known as ‘the small business nation’. In fact, our economy relies on the success of SMEs which make up around 80% of all Australian businesses. It’s no surprise that when COVID hit, the Government injected considerable financial assistance to keep small businesses operational and employing staff. While these temporary cash-stimulus measures have been a lifesaver in many cases, they’ve also caused the rise of ‘zombie companies’ – businesses that aren’t viable long-term and are only solvent because of this government financial assistance.
Now that we’re in October, the Government has announced it is extending these temporary measures until the end of December 2020, and in some instances until March 2021. This may delay the inevitable business closures even further, placing creditors under a very real risk of trading with organisations that are technically insolvent.
How many small businesses are at risk of insolvency?
The Reserve Bank of Australia recently reported that up to 25% of small businesses would be at risk of insolvency if those cash subsidies ceased today. And Treasurer Josh Frydenberg has declared that small businesses are a particularly vulnerable group, admitting that some will not survive COVID-19.
If you’re trading with customers or suppliers who are being falsely propped up by government stimulus packages, now is the time to swing into action and protect yourself from the ‘Walking Dead’.
Unlike the popular Zombie series, we’ll never advocate the use of crossbows or firearms to be your weapons of choice! When it comes to business, prevention is always better than a cure, and there are some clever, simple prevention strategies you can implement now to protect your business.
Optimum Recoveries’ Zombie Prevention Hitlist
1. Be extra vigilant in all your dealings
Don’t rush into agreeing to payment plans with your debtors without fact-checking their financial situation first.
Register with a credit bureau and ask them to conduct a review of every one of your customers. They’ll send you automatic alerts of any worrying signs so you can act fast. Let us know if you need help.
Keep talking to those you do business with – both your suppliers and customers. Regular and open communication can help you uncover any concerning issues before it’s too late.
2. Ensure your internal processes and terms are watertight
Get expert assistance to review your current T&Cs, credit management processes and internal policies to make sure they give your business adequate protection in today’s economic climate.
Optimum Recoveries can conduct a health check and identify any gaps that may leave you susceptible to hard-to-recover debt.
What the latest Government proposed legislation means for SMEs?
The Federal budget handed down on October 6 2020 seems geared to provide some much-needed tax relief to both businesses and individuals. This will hopefully encourage Australians to have the confidence to spend in the coming months, providing the financial support that businesses need to keep trading.
Here are some key points impacting SMEs:
Immediate asset purchases write-off: Any new asset acquired until 30 June 2020 will be eligible for a full tax deduction. The same will apply to second-hand assets, up to 30 June 2021. There is no dollar value limit to the deductions.
Loss carry back: Businesses that have incurred tax losses in either FY2020/2021 or FY2021/2022, but have paid tax in FY2018/2019, can carry back the tax losses and be eligible for a refund of the tax paid in the earlier years.
JobKeeper and JobMaker: JobKeeper payments look set to wind up at the end of March 2021. The new JobMaker system offers employees a subsidy for hiring new employees from 7 October 2020 to 6 October 2021, provided the new employees have previously received JobKeeper or similar. This is excellent news for P2P and any clients who have been holding off recruiting new team members!
More stimulus measures: Spending initiatives are set to be introduced to kick start spending in a range of industries, particularly manufacturing, infrastructure, construction and research.
In the current business environment that’s both challenging and changing, Optimum Recoveries can help your business remain viable and thriving. Talk to Angela via the details below, about how she can assist by tailoring robust systems and processes to keep the Zombies away from your door!
Contact Angela McDonald and the team from Optimum Recoveries
P: 1300 556 937