My name is Louise Brnich, I am one of the Insolvency File Support Officers here at HLB Mann Judd Insolvency WA and my role involves talking to stakeholders and creditors about the status and details of a Company’s Liquidation and one of the most common questions I get asked is “Where did the directors go wrong?”
From my time working in insolvency I have come across a common theme when answering this question and it is that the directors didn’t come in to see us early enough or that they haven’t asked for help during the early stages of experiencing cash flow problems.
I know for some people seeking help can be hard as this is a very touchy subject to face up to but as your clients accountant and/or advisor you are uniquely placed to support and aid your client through these troublesome times and you may even be the only person your client feels comfortable to talk to regarding their financial burdens.
You may be asking yourselves, “But how do I get the conversation started?” Well I’m glad you asked, because I have come up with the following 4 simple questions that you can ask your clients that may help them open up about the reality of juggling the challenges of running a business during these unprecedented times.
- How is the business really going?
It is human nature for people to put their head in the sand and ignore the elephant in the room, but by asking your client this question it enables them to examine and explore their company and set out the core issues that they are facing.
The following are just some of the more common core issues we find that companies face.
- Large creditors lists
- Super arrears
- Tax arrears
- Decreasing working capital
- Decreasing margins
- Increasing cash flow pressure
- Difficulties collecting debts
- Are you happy with the way things are running?
This question enables you to make sure your client is on top of and complying with their statutory duties as a director and not just relying on employees to know what’s going on in the business.
For example some follow on questions from this could be:
- Are your books and records up to scratch?
- Do you do a monthly reconciliation, or even better, weekly?
- Are your aware of accounts receivable amounts?
- Are the debtors being followed up on a regular basis?
- What’s the software you use to keep things up to date electronically?
You would be surprised how many companies we have to report to ASIC for Section 286 of the Corporations Act 2001 as the books and records weren’t to an adequate standard and the director was unaware.
As well as the amount of times we have had to chase up large amounts of debtors that go back years as they weren’t being followed up on a regular basis, keeping in mind that this is also a source of cash flow so it can be quite detrimental to a company experiencing issues. Or it could be that the records of the company weren’t kept up to date and the amounts had already been paid but just not reconciled on their database.
- Are you paying your debts on time including your tax and super requirements? Are there any arrears?
Most people would consider this question as an obvious point. However we see this all the time were a company’s trade creditors lists are up to scratch but they then haven’t been paying there statutory debts to the tax office for five years.
- How are you feeling/coping with all of this?
We believe that this is the most important question to ask your client. There are many aspects of running a business that could affect your client’s mental health or they may even be experiencing personal problems that could impact their ability to run their business.
A common response to the requirements and burdens of running a business is stress. That is why this question is so important to ask as when your client is preoccupied with their company, they may not realise the impact that it is having on their mental health until someone asks them the question. While stress isn’t the same thing as having a mental illness, it can increase your chances of developing a mental illness.
As mentioned at the beginning of this article this can be a difficult conversation for your clients to bring up so by asking these questions you may be providing a sense of direction and relief during these challenging times. Especially now as the Australian economy has come up against a lot of barriers in 2020, with the bushfire crisis at the beginning of the year followed by floods and then of course, the COVID-19 pandemic, which continues to create chaos amongst the nation.
If ever there was a right time to reach out to your clients and get the conversation started, now would be that time. Here at HLB Mann Judd Insolvency WA we offer a cost and obligation free consultation or you can even just give us a call on 08 9215 7900 if you have any questions to help you advise your clients on the best possible outcome.
About the author
Louise Brnich is an Insolvency File Support Officer at HLB Mann Judd Insolvency WA. Louise assists the Principal and Director with the many Corporate and Personal insolvency appointments managed by the HLB Insolvency team.
If you have any queries about insolvency matters, please feel free to contact the team on 08 9215 7900.