Cashflow-strapped SMEs urged to seek help immediately

SMEs are being urged to seek help immediately if they find themselves struggling to pay their taxes because of pandemic-driven cashflow issues, with business rescue and insolvency firm Jirsch Sutherland pointing out that confronting the issue now will improve SMEs’ chances of restructuring their business or implementing other measure that will keep their heads above water.

“Inconsistent cashflow has a huge impact on when and how a business can meet its tax obligations,” Andrew Spring, Partner at Jirsch Sutherland, said. “The lockdowns and restrictions are causing many businesses and individuals to struggle, and rising tax debts serve as a reminder to seek help. If you’re behind in your tax payments, it’s crucial to act quickly.”

It is estimated that ATO debt attributed to SMEs was $21.4 billion in FY20. Spring stressed that, while the ATO has shown leniency in recent times to businesses over uncertain cashflow and made some changes to its normal practices –it suspended its normal collection strategy in April 2020 – their generosity will not last for ever.

“With the ATO likely to ramp up its enforcement activity over the next six months, it’s crucial to have those conversations now,” Spring said. “There may be fewer options available if you wait. A tax debt of $100,000 or more is a deep hole for most SMEs to climb out of without assistance.”

He also added that speaking up immediately upon recognition of cashflow issues within the business could ensure business owners have more options to save their business or restructure. He pointed out Australia has some of the most advantageous business rescue legislation in the world with options readily available for a particular business’s needs such as payment plans, voluntary administration, and the new Small Business Restructuring Process (SBRP) which was developed in response to the pandemic.

“It’s added another option to financially restructure and save a distressed business. Not only can you defer payment, but you can also negotiate the amount of the payment,” Spring explained in relation to the SBRP. “Both Voluntary Administration and the SBRP provide an opportunity for the total liability of a company to be reduced and deferred.

“Talking to a business recovery specialist doesn’t mean it’s the end of the line; it can be an effective way to solve your business’s financial problems.”

Jirsch Sutherland Partner Malcolm Howell, a who is also a Bankruptcy Trustee, noted that it’s also crucial for business owners and directors to look to the future and not just consider what’s happening today.

“It’s vital to look at your current cash-flow situation and up to 12 months down the track,” Howell said. “It’s crucial to plan for now and for the immediate and longer-term future.”

While corporate and personal insolvency numbers are currently low due to government support measures and the ATO, banks and state revenue offices not yet focusing on debt collection, Howell pointed out that debts are mounting and pressure will continue to build.

“I expect to see a continual, steady increase in personal and corporate insolvencies over the next six plus months – but it’s difficult to predict the extent of it,” Howell said.