Is your company’s balance sheet in trouble?

To stay out of financial trouble, experts advise businesses to maintain a close watch on their accounting and paper work trail and if this highlights cash-flow issues, act immediately – get professional advice.

The recession was good for the insolvency business with a spike in the number of company failures. The next 18 months also look promising for the practitioners in the arts of company rescue and termination.

However, the hard times didn’t do much to dent traditional Kiwi business optimism and tenacity, says Shaun Adams, Director, Restructuring and Insolvency at KPMG Financial Advisory Services.

And this, he says will get many businesses, struggling to make the transition from good times to tough ones, into deeper trouble.

Adams advice for these companies is to get good business advice as soon as possible. 

Tom Davies, Director of Professional Support at the New Zealand Institute of Chartered Accountants, also recommends businesses pay attention to their financial structure, plans and skills and their business’s books from day one.

“Too many managers and owners don’t build this solid foundation for their business, especially in the early years.”

He says anecdotal evidence is that more businesses fall over in their early years, often because the manager is focused on making ‘widgets’ rather than on the paper work.

By spending ‘more time on the boring stuff,’ Davies says managers will be able to quickly spot when ‘things are starting to turn to custard.’

“The first sign, and it’s a big sign, of this is that there’s no money. The overdraft with the bank is up, you are getting calls from creditors.

“If you can’t come up with a plan to resolve this situation quickly, don’t let pride stop you making a quick decision.”

Facing up to reality early, he says can help you get out of your business relatively painlessly compared with hanging on.

“If you have outgoings that are greater than your incomings you are in danger of trading while you are insolvent and if you do that you could be found to be trading recklessly and then being personally liable for the debts.”

He says personal guarantees to banks are another reason to get out sooner rather than later so the bank doesn’t call up the guarantee.

Liquidations up

According to Companies Office figures, liquidator appointments climbed more than 35 percent to 6382 between 2007-08 and 2008-09.

Receiver appointments were only slightly up during this period, but they more than doubled between 2006-07 and 2007-08.

Adams says that from 2008 to mid 2010, he’d seen a significant increase in activity at the higher end of the spectrum where insolvency practitioners are appointed to deal with businesses and assets, either through administrations, receiverships, voluntary liquidations and debt compromises.

“The signs are that it is going to continue well into 2011.”