regulator

Running a business in a competitive economy is not for the faint-hearted at the best of times, and nor is facing up to adverse conditions that could sink a battleship. Unfortunately, for more than a few small to medium-sized enterprises (SMEs), the economic conditions they are dealing with now are so extraordinary that the prospect of potential failure does need to be addressed — and hopefully overcome.

Unfortunately, as is so often the case, SMEs can fail because their customers or their suppliers have failed. That does not make it any less their issue to deal with, as I will shortly point out, but underscores the point that you need to be always conscious of this issue, even if you have been on your game.

If you’ve already engaged with another business — and are therefore exposed to the risk they may not be able to pay you what they owe — then the first thing you should do is get proper business advice from advisers you trust. It could be the best investment you make, and probably the most time-critical. Do it first; this is not the time for “Ready, shoot, aim!”

Simple and obvious measures are often overlooked in the cut and thrust of doing business. By far and away the most important is to understand your own business’ exposure to other’s risk — and that means understanding those other SMEs’ exposure. Ensure that you verify the information other businesses provide, including any licence or authority they claim to hold to operate in certain industries. ASIC registers, and those of other government agencies, are a good place to start doing these basic checks.

It is not being too sceptical to place those companies on ASIC’s Company Alert Service so you can keep a “weather eye” on who you’re dealing with. It’s smart and sensible basic business practice. Rest assured, those companies will probably have you on their alerts. Everybody likes an early warning of trouble.

As any SME will know, the terms of trade will be vital. Most critically, that should include payment terms — so often the downfall of small businesses, even in a normal environment. They need to be reviewed in the light of the current liquidity-strapped environment. For many SMEs, the alarm bells may well be ringing by now.

If necessary, understanding the background to debt recovery may be very important — and understanding your still considerable rights, which are to a degree readily enforceable — so start off with ASIC’s advice on debt recovery for small business and information about illegal phoenix activity. You can also seek assistance in managing and resolving business disputes from the Australian Small Business and Family Enterprise Ombudsman. A reality check here: it won’t always be about them. For many SMEs, your own business challenges will be the immediate issue. It’s a fact that simply has to be addressed — as a matter of law as well as one of practicality and ethics. You need to be realistic about where your business is and, once again, a trusted adviser may be of great assistance in providing you with an independent view.

Insolvency alert

As a director of a company trading a business, it’s your clear legal duty to monitor the financial position of your business to ensure it can pay its debts when they are due. Every time you commit to paying a supplier — or perhaps even opening the doors each day — you’re implicitly saying you are able to meet your debts as and when they fall due. Yes, the federal government has provided temporary relief measures to protect you from personal liability from insolvent trading for debts incurred in the ordinary course of business. But that is by no means a “blank cheque” to carry on regardless. Nor is it a “get out of jail free” card, should you be found to have breached the law. Don’t forget, you will still owe the money at the end of the temporary relief. Have you planned how you will repay it? Again, it may be time to be realistic about your business position.

While it might be only small comfort, the fact is that many SMEs will be in exactly the same situation as anyone who finds themselves in such dire straits. And in most cases, they are equally as “undeserving”. But as the late Apple founder Steve Jobs and other celebrated “failures” have demonstrated, the ultimate test is how you deal with the cards you’ve been dealt. There is plenty of useful advice available to help you through.

Visit the ASIC website here for steps to protect your small business