Remaining confident amid increased insolvencies for FY 26/27

In a conversation with the masthead, RSM Canberra partner Adam Cormack said that causes could include temporary liquidity pressure, poor profitability margin, a cash collection cycle that is taking too long, exceedingly high interest rates due to debt, concerns regarding the solvency of the business, or all of the above.

“The more regularly you engage with your trusted advisor, which generally looks to be a lawyer, an accountant, or a combination of both, effectively allows you to manage your ATO debt,” Cormack said.

“The more you engage, the more optionality you do have, so what I tend to see is those business owners that are engaging with their trusted advisors tend to have a number of options available to them,” Cormack added. 

“That can be things such as the small business restructuring regime, the voluntary administration regime, safe harbour strategies or alternatively, depending on how early they are in the place, refinancing,” Cormack noted.

Cormack said that by being able to do the cash flow forecasting on a rolling basis, business owners can be fully informed of their exposure and upcoming expenses.

If businesses can stress test their assumptions, they can effectively preserve cash and resources, Cormack said. “What that also means [is] if there are things that are unforeseen or catastrophic [arise], it allows you to pivot as necessary … To effectively try and reduce any sort of impact that that could have on the company's solvency position.”

Mohen noted that the ATO has taken a tougher approach to their approval of Small Business Restructure proposals, general interest charge remittance requests and payment plan requests. Mohen said that as a result, “early and qualified professional advice is even more critical as alternate restructuring or recapitalisation mechanisms may need to be considered because of this.“

“The changes in line with the new legislation coming in from 1 July appear to be well understood at an advisor level but not to the same extent in the SME community,” Mohen said.

“We are urging members of the SME community to understand the implications of the changes – particularly the Payday Super changes – because they are the ones who are going to have to face the consequences and potential personal liability should these new requirements be breached,” Mohen added.

Mohen noted that operating a SME in the current economic climate is challenging, particularly amid the current wave of geopolitical uncertainty. “At this stage there does not appear to be any quick fix.”

Mohen noted the business challenges which result in rising costs, supply chain fragility, and inflationary pressure. “Ultimately, if businesses and business owners are not well equipped to navigate these headwinds, it can result in businesses making reactive decisions and in turn limiting options available to the business.”

He stressed the imperative for small businesses to maintain a proactive approach to business management to ensure that they can make informed decisions in a timely manner.

“Critically, with the introduction of Payday Super, businesses need to stay on top of their cash flow management, particularly where we are seeing increased use of DPN’s and garnishees by the ATO for the non-payment of statutory debts,” Mohen said.

“In addition to cash flow management, businesses should be reviewing their productivity and considering whether they need to redeploy resources to strengthen their market positioning,” he added.

Mohen also noted that the industry is currently seeing the impact of businesses that are early adopters of AI and other technology, currently being in a position to pivot and adapt more rapidly to the external market movements.

“Failure to stay on top of these things is usually the reason a business owner will attribute a corporate failure to. However, when managed, the data appropriately provides insight, understanding, and optionality to the business owner,” Mohen concluded.