New EOFY survival guide shares tips on how to navigate cashflow, contracts, and collapses

Small businesses looking to persevere through harsh trading conditions should monitor their cashflow, recognise the signs of insolvency, and keep an eye on their contracts, according to a new CreditorWatch EOFY survival pack.

Released Monday, the credit reporting agency’s new paper offers more than a dozen pointers for Australian entrepreneurs to consider before June 30, designed to help them navigate surging inflation and falling consumer spending.

The report coincides with rising business administrations and restructuring appointments, with little sign today’s trading pressures will ease any time soon.

Anneke Thompson, CreditorWatch chief economist, said businesses can “expect trading conditions are likely to be much more difficult going forward”.

“While the worst of inflation is behind us, energy prices are still set to rise, and consumers will only continue to spend less as they grapple with high-interest rates and rents.”

Cashflow is king

Glenda Lewis, president and CEO of consulting and mentoring service Step Out. Transform. used the report to highlight the importance of cashflow monitoring.

“While it’s ideal to implement cashflow optimisation strategies throughout the year, if you haven’t done so, don’t worry,” Lewis said.

Key strategies include filing taxes as soon as possible, ensuring liabilities don’t stick around, and the prompt return of tax refunds (if any are applicable).

Accelerating the send-out of invoices can bring cashflow up to speed, and automated invoice processing could be the answer for businesses stuck in payment bottlenecks.

Offering early payment bonuses can encourage clients and customers to pay ahead of schedule, Lewis said.

Conversely, negotiating generous payment terms with suppliers could take the pressure off your own business, she added.

Businesses should always have a sharp understanding of their cashflow position, and ought to strengthen their monitoring and reporting if that isn’t the case.

“It is crucial to be aware of the precise health and position of the business, as well as the sources and uses of cash,” Lewis said.

Recognise the warning signs of insolvency

There are many indicators a business is heading for trouble, and being able to recognise the warning signs beyond cash flow constraints is critical, said Rachel Burdett, senior principal at restructuring and turnaround practitioners Cor Cordis.

Beyond low working capital, Burdett suggests businesses watch out for:

• A lack of details forecasting, strategy, and business plan
• Incomplete financial records
• Hardship when selling stock or recouping debts
• A pile-up of overdue accounts and legal disputes
• Suppliers levelling ‘cash on delivery’ terms
• Increasing customer complaints, including online reviews

Along with other common-sense pointers regarding the business’s overall health.

Externally, it also helps to monitor the state of your customers.

Notably, Burdett recommended small businesses look into the Personal Property Security Registration system, which can make it easier for a small business to recoup its property if a trading partner becomes insolvent.

Keep an eye on the contracts

The Labor government’s crackdown on unfair contract terms kicks in from November 9 this year, but CreditorWatch suggests small businesses can still assess their terms before EOFY to shield themselves from hefty fines.

Under the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, open-ended variation provisions, broad indemnification clauses, and a slew of other constricting contract terms will be outlawed.

Penalties for rule breaches will be significant.

Corporations found to have bent the rules will be liable for the greater of:

• $50 million
• Three times the “reasonably attributable” benefit of those unfair contract terms
• 30% of the adjusted turnover across the period the breach was in place

Individuals found to have breached the unfair contract term rules could face fines of up to $2.5 million.

The number of businesses those rules will apply to is changing, too.

Businesses with fewer than 100 staff will be covered, up from businesses with 20 staff members or below.

Enterprises boasting less than $10 million in turnover will also be covered by the new rules.

Prue Greenfield, principal lawyer, litigation and dispute resolution; and Eliza Sinclair, lawyer, trade and commercial, both of Macpherson Kelley, said businesses could benefit from assessing their contracts ahead of time.

“Given the significant impact of these decisions and the expansion of the unfair contracts regime with the definition of what constitutes a ‘small business’ and the introduction of the penalty regime, we recommend that businesses that supply goods, services or finance to small business customers (or that are small business suppliers themselves) review their standard form contracts to make sure that they comply with the UCT laws,” they said.

You can access the full report here.