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Have a plan to bridge short term cashflow dips

Every business should have a contingency plan to deal with an unexpected dip in cash flow. While simply having a business overdraft available provides some degree of short-term protection, it’s best to have an array of lifelines at your disposal. Also, we find that the overdraft gets used for everyday purposes rather than for unexpected problems.

Peer-to-peer financing is another clever route to addressing temporary dips in cash flow. Conventional peer-to-peer financing involves online companies lending to businesses from funds gathered through a pool of investors. These loans are usually quicker and more straightforward than conventional borrowing and there is no minimum amount, so they are perfect for topping up cash flow. Beware: some offer much better value than others: don't be taken in by headline rates, do some calculations or check with your accountant.

Another smart take on peer-to-peer financing is an online improvement on invoice ‘factoring’, whereby a business in need of cash sells its ledger to a bank or another conventional lender. The online providers in this area of peer-to-peer financing, which include InvoiceX, will buy (for 1.5-3% per month) individual invoices – allowing companies to easily draw specific, limited amounts – but avoid the hidden fees, long contracts and slow decision processes of traditional factoring providers. For working capital spikes, this is often a better ongoing solution than a short term loan which can cause more cashflow problems a few months later. Importantly, watch out for whether your customer needs to be notified.

Small business "carnage" as ATO wind-ups soar

Small business owners are under relentless cashflow pressure. In the last financial year, over 500,000 businesses entered into payment arrangements with the ATO.

Over $20bn is owed in overdue tax by SMEs, rising by the day.

Banks are not incentivised to lend to SMEs, only providing $11bn of finance last year - 15% of overall credit provided to Australian businesses.

The pressure is intense but in many cases can be solved. There are now many new sources of alternative finance available for SME businesses - 'Fintech', 'P2P' or 'Marketplace Lending' - but awareness is very low.

It is time to change all of this. SMEs employ most of our workforce and their success is absolutely critical for our future. We need to get the word out.

Taxman to axeman: Small business “carnage” as ATO wind-ups soar

CARA WATERS

Sydney insolvency practitioner Jamieson Louttit has warned the soaring number of SMEs being wound up by the Tax Office is resulting in “carnage”.

Figures compiled by Jamieson Louttit & Associates show 396 applications to wind up companies were filed with the Australian Securities and Investments Commission in July.

This is a decrease from May when 582 applications were filed but the data shows the number of wind-up applications over the past four months is the highest on record for that period of time.

Jamieson Louttit told SmartCompany the ATO has focused on extracting money from SMEs since the budget.

“It is like a shotgun that has gone off,” he says.

“It seems like carnage is hitting small businesses.”

Louttit says another 40 wind-up applications were revealed this morning showing that “the carnage is continuing”.

“To me the government is looking at [small business] as an easy target as opposed to big corporations which have a lot of money to defend it,” he says.

“My thought is the government is just short of money, to me it is as simple as that.”

Jamieson says the wind-up application threshold was $300,000 in the past but has now dropped to $30,000 and the government is “not as forgiving” about entering into arrangements with small business.

“Every business runs around on cash not WIP and debtors, at the moment the government has $20 billion in WIP and debtors in SMEs,” he says.

“The budget came out in May and since then the increase in wind-ups has been significant.”

Jamieson says the affects on small business and the broader economy are significant.

“It is just killing the economy, it really is,” he says.

“For every insolvency, four other people are affected, that’s the people who are owed money, suppliers and customers.  Every business they wind up rather than being a bit more forgiving has a detrimental affect on the economy.”

A spokesperson for the ATO told SmartCompany its preference is to work with businesses to help them manage their tax debts.

“As the Commissioner said during his address to the National Small Business Summit on 16 July, our intention is to be more active to prevent debts, to provide appropriate help and support when people are in debt, to take the right action to prevent debts from escalating, and to take legal action earlier when it is warranted,” the spokesperson says.

He says the ATO uses “sophisticated analytics” to tailor the timing and selection of our next best action, from preventative measures, such as SMS reminders to legal recovery which enables it to resolve debts earlier.

“Where a business does not work with us, we will take stronger action to ensure that it does not gain an unfair financial advantage over the majority of businesses who pay their tax bills on time,” the spokesperson says.

“This includes initiating wind-up action where there is evidence that a company is insolvent.”

The decision to grant a winding-up order rests with the court and the ATO has provided over 500,000 payment arrangements in 2014-15.

“We did have a greater focus on legal action in the second half of the 2014/15 year and filed about 1200 wind up actions in this period,” the ATO spokesperson says.