What an insolvency accountant wants you to know

Craig Crosbie is a partner with leading insolvency firm PPB Advisory. He has seen plenty of businesses enter voluntary administration, liquidation and receivership. We asked him what advice he has for our clients so they never have to meet him in a professional capacity.

BC: What are the bad practices that lead to companies getting in trouble?

CC: The telltale signs often hark back to day one. The lack of a business plan is a key signal of potential trouble. Companies that take time to create a plan, map out what success looks like and grow their business in a strategic way are in a much stronger position than those who just sail along without thinking of the future. The second aspect is financial naivety. Businesses that don’t understand their own basic costs, payable taxes or obligations towards their employees, such as superannuation, are taking a big risk.

BC: What about planning for leaner times, is that important?

CC: Yes, absolutely, especially for creative agencies. Loss of one or two big clients or a sudden economic downturn could spell disaster for an agency that doesn’t have a contingency fund. I strongly advise any business to start building capital reserves and add it to the budget every year.

BC: How important is a relationship with a bank in terms of successful financial management?

CC: Building a good relationship with a bank, and viewing it not as a service provider, but as a partner in the growth of your business, is very valuable. It’s important to understand what banks offer – do not assume that your banks will continue to fund your trading losses. Banks are competitive on price so don’t pick your financier on price alone. It’s better to appoint a bank that can be a strategic partner in your business growth, shares resources, understands your business and is committed to your success.

BC: Any other tips for dealing with banks and maximising the value of a relationship with a bank?

Firstly, communicate with your bank if you are experiencing financial hardship – don’t wait till the day salaries are due to ask for help. Secondly, educate your bank on the ebbs and flows of your industry. If you have natural, cyclical lows in income, your bank should understand that’s the nature of your business. Thirdly, don’t change banks too frequently. Invest in your relationship with a bank, educate them about your business, communicate any potential issues well in advance and you’ll have a much stronger negotiating tool if you do have reason to ask for assistance.

BC: What other mistakes do you see in business that get into financial trouble?

CC: All too often, businesses are not closely monitoring their financial situation. An annual meeting with your accountant or auditor is not nearly diligent enough. A small problem can develop into a major crisis if you’re not paying attention through the year. I strongly advise creative agencies and similar businesses to evaluate financials thoroughly on a monthly basis, and use those insights to make better budget predictions as well as identify any potential problems before they become critical.

BC: When it comes to [creative agencies](http://businesscontinuum.com.au/help/marketing-and-creative-agencies "target="_blank), what particular issues can arise for them?

CC: Over-servicing can be a challenge in this industry. It’s important to start strong with new clients and be very diligent in knowing how much each piece of work will truly cost your business, and charge accordingly. This is where strong timesheeting, capacity planning and cost management are vital. Many agencies cut rates to appeal to potential clients and start off on the back foot before the first invoice is due. Better to start with a strongly defined scope that clearly tells clients what is included in their fee, and what incurs extra charges. It’s harder to have that conversation with a client who’s used to getting a lot of expensive extras for free, so charge them right from day one.

BC: What would your advice be to a company that feels like it may be in trouble?

CC: Never, ever ignore the problem; that is the worst possible approach. Start by finding good business advisors with experience in your sector to help formulate an action plan. Good advisors are valuable because they can share best practice from their other clients, teach you what you should be doing and hold you to account. And of course, speak with your bank, share the plan you’ve formulated and it will be more willing to support you if you have a strategy in place to address the problem.

BC: Any final tips on things business owners can do to avoid trouble?

CC: When business is going well, it’s easy to get complacent and let unnecessary costs creep in. It’s important to be eternally vigilant. Business owners also need to continually educate themselves in aspects of good financial management. Strong managers make it their business to know exactly what’s going on with the financial performance of their company – all the time, not just at the end of the financial year.

Matthew Peng

Founding Director of Business Continuum

Melbourne, Australia
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