My Business is Struggling Financially. What Are My Options?

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Table of Contents

• 1. Seek Financial Help
• 2. Speak to an Insolvency Expert
• 3. Raise Capital or Obtain Financing
• 4. Voluntary Deregistration
• Key Takeaways
• Frequently Asked Questions

Financial hardship occurs when you are unable to meet your financial obligations and pay your debts when they become due. A business can face financial pressure for many reasons, including natural disasters, illness or injury, increased competition or a material change to your circumstances. Whatever the reason, financial struggles can be incredibly stressful and take a toll on your mental wellbeing as a business owner. As such, it is useful to know your options when faced with financial turbulence. This article sets out four options you might take if your business is struggling financially.

1. Seek Financial Help

Time is a critical factor when facing financial difficulty. If you suspect your business is financially struggling, it is vital to act early before you incur more debt. 

Often, the first step is getting your accountant involved and contacting your bank. Your bank may be able to offer relief by waiving fees or deferring credit card or loan repayments. Engaging an insolvency lawyer can also advise you on your best course of action.

Ultimately, you should seek help immediately if you notice that your business is struggling to meet financial obligations to avoid slipping into further debt. Good record keeping and up-to-date financial records will allow you to have a better vantage over the health of your business. 

2. Speak to an Insolvency Expert

If you are a company director, you have a legal duty to prevent your company from trading while insolvent. A company is insolvent if it cannot pay its debts when they fall due. Your tax agent and financial adviser can help you determine whether your company is solvent, which is critical to ensure you do not breach your director’s duty not to trade while insolvent. 

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If you are a company director, an insolvency expert can provide tailored advice to help you comply with your duties, as required by the Corporations Act.

You may also have ‘safe harbour’ protections available to you, which provide a defence from trading while insolvent. These protections may be available if you are taking a course of action that will lead to a better outcome for the company than administration or liquidation.

It is important to remember that engaging an insolvency practitioner does not mean the end of your business. You can engage a professional even before you become insolvent to prevent you from reaching that stage and to create a plan for your business. This could involve seeking financier loans or advising you on what assets might be liquidated so that you can access working capital. 

3. Raise Capital or Obtain Financing

If your business needs a cash injection, selling off equity may be an option to raise capital. Bringing on investors who can help support your business’ financial position can be a lifeline in times of strife. 

If you need interim cash flow to use as working capital, you can look to take out a business loan. A loan is a good option if you have an overall healthy business that is just in need of cash flow support to cover day-to-day expenditures in the short term. 

Some loan providers have an offering where loan repayments are paid by the business through its revenue. This has the benefit of being flexible and better tailored to your business’ health and its performance on a rolling basis, as opposed to an ordinary loan where repayments are fixed regardless of how the business is doing.

4. Voluntary Deregistration

Where you are operating your business through a company, voluntary deregistration may be an option. Voluntary deregistration presents an opportunity for solvent companies (who can still pay all of their debts) to wind up operations and close up cheaply without needing to engage a liquidator. 

In Australia, you can deregister your company if it meets the following requirements set by ASIC:

• all shareholders agree to deregister the company;
• the company is no longer conducting business;
• the company has less than $1000 in assets;
• the company has no outstanding debts or liabilities (including unpaid employee entitlements);
• the company is not involved in any legal proceedings; and
• the company has paid its fees and penalties due to ASIC, such as company renewal and late payment fees.

Where your business is operating through multiple companies in the same corporate structure, it may be an option to apply for voluntary deregistration to wind up one of the limbs of the business. This can help you effectively down-size and reduce overheads by having one less entity to manage.

Key Takeaways

Financial challenges can be a difficult storm to weather for any business. When faced with difficulties, it is important to be proactive and act early. The temptation to bury your head in the sand is one of the worst things you can do as an owner of a struggling business. Likewise, inaction or business-as-usual can even lead to a serious breach of your legal duties if you are a company director. Engaging professionals and seeking external help can offer a lifeline in helping you build a plan to bounce back from financial hardships. Speak to your accountant and your bank as soon as you suspect you might not be able to pay your debts.

For more information, our experienced banking and finance lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions