Christmas cashflow woe could haunt start-ups

Start-ups need to combat a Christmas cashflow crunch despite a five-month low in insolvencies, according to industry experts.



According to the Australian Securities and Investments Commission, 766 companies entered external administration during September, compared to 914 in May.


But insolvency practitioners predict business failures may increase again due to rising interest rates and the strong Australian dollar.


Taylor Woodings insolvency partner Quentin Olde says businesses should not get complacent in the lead-up to Christmas, particularly in light of the ATO’s debt collection crackdown.


In its annual report for the 2010 tax year, the ATO warned that the level of outstanding debt – which soared from $12 billion to $15 billion in the space of a year – will be a focus area as the economy recovers.


“We have seen anecdotally that the ATO is taking a more aggressive approach with creditors,” Olde says.


“All businesses, but in particular start-up businesses, need to be very conscious of cashflow over the Christmas period.”


“It is a period that does tend to catch people out because there are fluctuations in costs. For example, a lot of annual leave can be taken and [there is] also a loss of productivity.”


“It’s certainly prudent to be realistic about cashflow. Where possible, build in some headroom to get through that period.”


He says companies likely to be hit hardest include retailers, which will be affected by lower consumer spending after the rate rise, and the export and tourism sectors, hindered by the strong dollar.


Michael Fingland, managing director of turnaround specialists Vantage Performance, says start-ups should already be preparing for the Christmas period to avoid insolvency in 2011.


His tips include implementing a rolling cashflow model, securing additional working capital in advance, selling non-core assets, and communicating payment expectations to clients prior to Christmas.


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