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One Australian mid-tier firm has predicted the coming year will see a significant jump in the number of insolvencies nationwide, as companies struggle with rising interest rates, cash flow, and the Tax Office's crackdown on unpaid debts.
The prediction came on the back of the ATO's commitment to chase debts as low as $60,000 and demands that GST be paid on time, developments that will exacerbate cash flow problems for struggling businesses in 2017.
RSM Australia head of business advisory Peter Saccasan urged companies to review their business activities now to avoid problems in the coming year.
“While a health check may help distressed firms from literally going under, it could also help more solvent businesses take practical steps to better manage a higher interest rate environment by improving their balance sheets and overall business performance,” Mr Saccasan said.
“The key is for companies to build sustainability into their business model by creating a strong buffer in operating profits that allows for fixed commitments going forward,” he added.
RSM recommended businesses measure how they are tracking against their budget benchmarks, maintain healthy interest cover ratios, and ensure they are not reliant on cash injections to make payments to creditors and employees.
“It’s crucial to understand business performance drivers so decision-makers can turn the situation around if necessary,” Mr Saccasan said.
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