Well, it’s coming to that time again. The end of the financial year. Over the coming months many accountants and professional advisors will be meeting with their clients, and perhaps talking to those business owners that have not paid much attention to the numbers since the same time twelve months ago. Maybe the meeting will be with that new client who they just brought on. As specialists in assisting company directors and individuals in financial distress we often get asked, “So what are the warning signs? What should I be looking out for?” As you could imagine the list of potential warning signs is long and varied, but we do see some common issues that our clients face. Often seemingly simple and routine things, things that may not matter when the business is travelling well, take on huge significance when the business is facing financial difficulties. In response to feedback from our network we previously developed a checklist to assist accountants and other professional advisors in identifying potential issues and warning signs. We have put this up on our website for you to use and you can download it from here:
Client's Risk Areas Checklist >> Let’s walk through some of the big ticket items. Immediate indicators of risk can include;
The client is already in, or needs to go under, a payment plan with the ATO.
The client has unpaid PAYG and/or superannuation.
The business is in excess of its overdraft or behind on loan repayments with its lenders, or in default of lending covenants or conditions.
The business has been referred to the bank’s “Asset Management” department.
There are significant arrears with trade creditors.
If your client is showing any of these signs it may be appropriate to delve a little deeper and seek some specialist help. Some longer term or structural issues to consider are;
Individuals acting as the trustee of trusts would incur the debt in their personal names.
If husband and wife are both directors of a company they will both be called on to sign personal guarantees, exposing personal assets to risk.
Credit agreements that have been personally guaranteed may allow a creditor to put a caveat on property owned by the guarantor, like the family home.
Non-lodgement of BAS and SGC returns may result in a “lockdown” Director’s Penalty Notice (DPN)
Division 7a loans are an asset of the company, and if the company goes into liquidation, need to be repaid to the liquidator.
The business structures recommended by the accountant or professional advisor have been contaminated by the owner through inter-group loans, exposing asset holding entities to risk.
The owner or director has lent significant sums to the company but does not have a written loan agreement and has not registered a security interest on the Personal Property Securities Register (PPSR).
The client does not really know what their bank or lender use as security for what loan. Maybe they won’t get any money out of the sale of that investment property to put back into the business.
For Queensland only - Related parties have provided a Deed of Covenant to the QBCC that is no longer required as the company would qualify for the licence based on their current financial position.
We think the checklist is a simple, easy to use tool to help identify these potential issues and add value for your client. This may enable you to increase your billings by providing additional services to your client to help them manage their financial position and risks. Feel free to contact us, or ring one of our strategists if you would like to talk over any of these issues. Happy EOFY and good luck with those client meetings coming up!