How can company directors minimise the impact of the current economic climate on their businesses and avoid insolvency?

2023 is shaping up to be a challenging year for businesses. Increasing interest rates, rising operating costs and action from the Australian Tax Office to recover overdue tax debts will place many companies under immense pressure next year. In turn, we expect to see a significant rise in insolvency rates and bankruptcy filings over the next year.  

So, what can you do as a company director to navigate these challenging times and minimise the impact on your business?  

Be proactive  

There is no time to waste. We are already starting to see a rise in insolvency cases, particularly within the construction industry. At these times you cannot afford to get complacent and assume your business can ride the storm and avoid bankruptcy easily. Seek early advice to understand your position and what action you can take to safeguard your business.   

Review your current business operations to critically evaluate the economic factors that would be most impactful for your business.   

Stay in the know of what is going on in today’s market. 

There is certainly a lot we can learn from previous downturns and recessions. However, we cannot assume that everything will play out in the same way this time round. Monitor what is happening in the economy  — the Australian Bureau of Statistics provides great insights into Australian business conditions and sentiments.  

Take time to understand the insolvency framework 

The end of the COVID pandemic has also marked the end of generous government initiatives to support businesses against insolvency. Stimulus such as JobKeeper and near-zero interest rates eased business finance pressure and helped keep insolvency figures low. Now the Australian Taxation Office (ATO) is under scrutiny as questions have been raised around the effectiveness of the current insolvency regime.  

The current framework assumes that a business failure is due to poor management, not taking into account the ramifications of an economic crisis. The Government’s chosen panel of experts noted that the current Australia’s insolvency framework is, “an impenetrable quagmire that is scary, complex, and unknown” (Financial Review, 2022). A complete report by the committee is expected to be presented to Parliament in May 2023. 

However, it’s important to note there is support available. You can read more about the support for businesses in Australia on the government website. It can be difficult to understand the framework review and the jargon used to explain changes. It is worthwhile investing in an advisor to provide guidance on the process and explain the terms in a way that is easy to understand.  

Find ways to adapt  

It goes without saying that an economic downturn presents many challenges, but it can also bring new opportunities. Consider how your business can adapt to capitalise on growth opportunities. Conduct a SWOT analysis to identify key internal and external factors impacting your business. This may seem like a simple task but if you really take time to map out a critical SWOT analysis it is a very worthwhile exercise to clearly understand where you are at.  

Conclusion  

While it may be an overwhelming time for many businesses, it’s important to stay focused and be as critical of your operations as possible. Take stock of every aspect of your business, from your cash flow and financial support to your sales and human resources. Don’t hesitate to get professional help to review your business.   

At FAL Lawyers, we provide specialist, commercial and strategic advice. For instance, we work with liquidators, administrators, receivers, bankruptcy, creditors and company directors. 

We are committed to making sure that you receive the right advice tailored to suit your needs. 

Contact us to book a free consultation today.