“Walking dead” companies on the rise as ATO debt sits at $34 billion

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The number of companies on the verge of collapsing is on the rise, warns national accounting firm RSM.

These so-called “zombie companies” have higher-than-average debt levels and are dragging down the Australian economy, according to a report from the accounting firm, titled The Rise of the ‘Walking Dead’.

The situation isn’t going unnoticed, with RSM’s research finding a large majority of business owners believe there has been an increase in “walking dead” companies in their industries.

A lack of cash was cited as the number one reason why businesses enter financial trouble, followed by inadequate systems and poor planning.

Of the 1500 business owners and consultants that participated in the RSM study, 23% nominated cashflow problems as the primary cause of businesses entering the realm of the “walking dead”, followed by 21% who nominated inadequate systems and poor planning. Another 16% said market conditions are to blame, while 11% said the situation is caused by the actions of the Australian Tax Office.

The findings come after it was revealed there has been a spike in the number of insolvencies in the past 12 months.

What is a “walking dead” company?

Peter Marsden, head of restructuring and recovery at RSM Australia, told SmartCompany a “walking dead” business is one that is on the verge of collapse.

“Walking dead are those companies that have very large amounts of debt,” Marsden says.

“They break even or make a small profit. They’re only making ends meet because interest rates are low. As soon as there’s in increase in rates, or there’s any action by creditors to recover debts, they’ve got nothing.”

Marsden says walking dead companies are a big concern, given given businesses collectively owe the ATO around $34 billion.

“They [the ATO] need to recover that money to pull it back into the economy and encourage growth and do all the things the politicians say we need in the election campaign right now,” he says.

What can be done to tackle the “walking dead”?

There is “no doubt” the ATO will continue to crack down on businesses that owe it money, according to Marsden.

“This started 18 months ago and everyone I talk to at the tax office say it’s our clear objective to recover that money,” he says.

Apart from the ATO taking action, Marsden says there are practical steps business owners can take in order to address potential financial trouble.

“One of the biggest problems we have is people coming to us too late,” he says.

“There is always an opportunity to deal with the issues confronting your business, providing you do it early.

“You need to get an expert in the space that knows what they are doing.”

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Justin Tyme
Justin Tyme
4 years ago

At present the major problem, as I see it, is the major companies being a drag on cash flow, plus Government departments procrastinating and slowing payment for frivolous reasons. I can provide many samples however, the simple statistics tell the story. Receivables have gone out by one standard deviation plus. I.E. 30 days now 60, 60 days, now 90+, 90 days out there in the never never, and a huge chunk of that is Government Department based, people playing games. This off course forces all down stream sub suppliers onto extended payment time as well. This knock on effect is largely ignored by Govt department functionaries and one can’t collect with pressure without loosing a prospective future client. It’s easy to say you don’t need a bad payer but in so many ways a bad payer is better than none.

T.J . Antipodes
T.J . Antipodes
4 years ago
Reply to  Justin Tyme

I agree. I had situation where on plant of big client screwed me aorund on my last 20%. It took me 4 years till they fired the problem person who was stuffing aorund many before I got my 20%. How can you take one section to court or hand over to collections and not loose the rest. You start an action and you are persona non grata.

I have this happen to me 2 other times as well in my business history with times of 2+ year to get some money.

It would be nice to have legal system like Germany for business, which is in the realm of some affordability, not like our backward useless ” expensive”system.

How about some innovation, productivity improve in the legal system, and get this monkey a bit off the back of business

peter
peter
4 years ago
Reply to  Justin Tyme

I have the opposite, mostly 30 day accounts ( some 14 days ) and currently collecting at 25.15 days. As for the larger state Government agencies the average for the fin year is 41 days from invoice date but in the last 28 days its been 28 days. For statutory authorities its 7 days on average for them to pay. We’re made a conscious effort to NOT deal with any business or government agency involved with building or construction cause its BAD business.

peter
peter
4 years ago
Reply to  peter

Sorry – That was meant to read “……..in the last 90 days its been 28 days…” apologies

You train your debtors how to pay by modifying your behaviours and processes internally. positive cash flow is gold but takes time to learn, train your customers, and evolve your processes to do so.

John Hutchinson
John Hutchinson
4 years ago
Reply to  Justin Tyme

Absolutely correct Justin. No Government Department should sit on “Payables” more than 5 Days and no Publicly listed company should sit on “Payables” more than 10 working days. If they can’t pay they are insolvent. If they can then they are just doing so to strangle the supply chain.
We are on a precipice and Government and associated Bureaucrats need to save us from going over the edge.
In saying this, anyone who is great at Building things or producing things, isn’t necessarily “Business Minded” and the cost of hiring or engaging someone to set systems and policies up is too prohibitive for start ups, so the rot begins even before the business turns a profit.
Finding the Solution is always going to be difficult, but real Business Education to all persons registering their first Business should be something on the agenda.

RL
RL
4 years ago
Reply to  Justin Tyme

Not true … we pulled our debtors back in line a couple of years ago – 2 of our top 5 are on pay-up-front because of chronic delinquency.
We’re now back to 30-45 days, and it has taken a weight off our shoulders.
“The sale is not made until the money is in the bank.”

Don’t kid yourself …

T.J . Antipodes
T.J . Antipodes
4 years ago

As an exporter, fry the management of Austrade and Efic

Efic say they have these new schemes , yeah at 1`3.5% interest rate. My message to them is wake up, and do something decent for business.

Austrade go and look at the number of views on their youtube channel and Taiwan trades, its 3 times for Taiwan and its been up 1 year less.

Plus go to http://www.Taiwantrade.com and try and find our equal from austrade, you wont as we dont have one.

I know a medium size German company who expanded, but ow that right there fixed loan rate was around 2.25% to build thee new euro 4-5 million plant, our at the same would have been early last year close to 6%.

The government wants miracles out of us , stop giving us poor support

I could write a novelette size report on how poor austrade is.

Plus for SME”s we just love our big clients who pay EOM 60+ that make life easy for us.