The number of female entrepreneurs in Australia represents about a third of all businesses but to ensure this number keeps rising, there are some warning signs to be aware of.
The number of personal insolvencies increased 2.1 per cent in the 2017 financial year compared to the previous year.
Economic conditions and excessive use of business credit were the most common causes of entering into personal insolvencies.
With women entrepreneurs more likely to provide their own finance capital for their business ventures, taking steps to help ensure the business is protected against failure is vitally important.
Business failure doesn’t happen in a vacuum.
There are a number of warning signs that proprietors should monitor, and planning actions that they should undertake.
Regular missed or delayed tax and super obligations
When a business is facing challenging times, it may be tempting to delay payments which don’t impact the day to day operations, such as pay as you go (PAYG), goods and services tax (GST) or super obligations.
But even if revenue doesn’t improve, these payments still need to be made.
Failure to remit PAYG and super to employees may also result in personal liability being imposed on company directors.
Although it may seem worthwhile to trade at a loss in the short term, in order to get the business up and running, ongoing trading losses erode the working capital of the business.
If trading losses continue for a number of months it is important to seek professional advice.
Poor record keeping
It can seem like a time-consuming exercise, and take time away from revenue generating activities, but maintaining up to date financial records is important.
Without accurate management reports, cash flow statements, forecasts and business plans, it is difficult to make informed decisions about the direction of the company.
Cash flow management
Maintaining an ageing debtor ratio, recorded in days overdue, allows business owners to more accurately monitor how quickly accounts are being paid.
Strict policies and collection procedures should be in place to ensure maximum and efficient cash collection of debtors.
Defaults on banking facilities and regularly being at the maximum limit of the overdraft facility may indicate cash flow deficiency.
Using personal credit card for payment of business expenses is also a red flag.
Creditor / supplier payment terms increasing
Delaying payments to creditors may seem like a good stop-gap action, but it can have a negative flow-on effect on business finances.
If there is a history of delayed payments, suppliers may reduce trading terms or cash-on-delivery terms, which usually reflect their concerns about the ability of the business to pay invoices on time.
Only selectively paying some creditors over others or making payments outside of usual payment terms may be a sign of cash shortage.
This is another red flag that business cash flow needs review.