EOFY is the perfect time to assess your business
As the end of the current financial year approaches, Australian businesses are being encouraged to take stock of their businesses, so their directors and accountants can do a business health check and fix any potential issues.
“This financial year has seen the insolvency ‘dam’ begin to break, which is why EOFY provides a good opportunity to truly assess how your business is going,” said Gareth Gammon (pictured above left), Insolvency Australia director. “We’ve spoken with a number of insolvency specialists who have similar advice: it’s the perfect time to ‘get your house in order.”
Patrick Coghlan (pictured above right), CreditorWatch CEO, said that since insolvency mainly occurs due to cashflow issues, it is recommended to sort out the businesses’ ledger now to start the new financial year in the strongest possible position.
“The number of variables impacting the risk exposure of modern businesses means that automation of credit risk management is really the only way to effectively keep on top of it,” Coghlan said.
“Now is the time to collect on outstanding payments to help your business better manage EOFY tax and superannuation obligations. Online collections tools take the pain out of chasing unpaid invoices by sending automated reminders, increasing your collections rate, and freeing up your accounts team to focus on value-adding tasks.”
Joseph Sleiman, from insolvency specialist firm Sleiman & Co, said companies should make use of the EOFY to review their tax lodgement compliance, plan for the new financial year, and assess and control and tax or other debts.
“Keep up to tax with tax lodgements. It keeps you closer to your accountant, who may be able to advise you at an early stage to seek the assistance of a registered liquidator,” Sleiman said. “The continued interactions with your accountant can have the benefit of reducing or eliminating a director penalty notice (DPN) being issued, particularly a lockdown DPN, which could have dire consequences for the director’s personal financial affairs.”
By keeping tax relationships transparent, directors would less likely incur substantial tax and other debts that could potentially cause life-changing or irreparable personal financial damage, he said.
John Kukulovski, partner with insolvency solutions and restructuring firm RRI Advisory, said EOFY is a challenging time – even for businesses that are doing well.
“It’s crucial that directors use this time to take stock of their company’s financial health and identify any opportunities and issues for the coming year,” Kukulovski said. “As insolvency professionals, we all too often see directors trying to take on new challenges without knowing how their company is holding up. You can’t chart a new course without a map.”
EOFY preparation basically means company accountants tidying amounts and balances in the chart of accounts for statutory reporting and tax accounting purposes, according to Ben Verney, founding partner at boutique insolvency and restructuring practice, Greyhouse Partners.
“If this process helps directors look closely at the level of business commitments (liabilities) and compare these to short-term cash availability (liquid assets), then EOFY planning is a welcome opportunity to do so,” Verney said. “The risk of insolvency is decreased if this process is performed regularly. Preparing and analysing business cash flows and forecasts is optimal if performed monthly. Daily/weekly is best, and quarterly is reasonable.”
Frank Lopilato, national head of restructuring and recovery with RSM Australia, said setting up a clear cash flow budget for the new financial year enables companies to have better oversight of their business and pre-empt issues that may arise from cash deficits, which in turn, will help mitigate a lot of financial stress and ensure they allocate enough to cover fixed costs such as rent, loan repayments, and insurance.
“With the change and volatility of economic factors, it is critical that business owners maintain optimisation of their cost pricing to cover overheads and pricing accordingly, ensuring the company is profitable yet still maintaining competitiveness and demand,” Lopilato said.
“In the tough economic environment we’re in, it’s further needed to boost these considerations by not optimising cost pricing but rather working to make a sale by improving marketing, customer relationships, and the quality of goods and services.”
Here some top EOFY tips for Australian businesses:
- Prepare and deal with statutory and tax obligations
- Review your cash flow (current and forecast), and collect outstanding debts
- Give your business a ‘health check’ and get your books and records in order
- Prepay expenses (e.g., rent, leases, bills) to claim a tax deduction
- Identify where you can cut costs for the new financial year
- If in financial distress, speak with a specialist insolvency/business turnaround practitioner
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