How investment loans work (and how you could get one before it’s too late)
Investment Loans provide security and financial comfort in the knowledge that, depending on how you use this finance option you could; Create an added influx of cash flow that will provide peace of mind or; Provide you with security against creditors and begin the process of refinancing yourself in comfort. Investment loans are provided to individuals or businesses that seek to buy more property. Using this finance option, these entities can use the loan to either refinance themselves with the equity in the property or buy further property to facilitate the rapid growth and expansion of the existing business. Medium to large businesses will benefit the most from this finance option. It is important that the entity considering this option has a strong foundation from which an enterprise such as this can be supported long-term and the finance option remains a blessing, not a burden. Generally speaking, this option will generate between $60,000 to $500,000 dependent on need, intention (are you refinancing or expanding?) and the short-term and long-term plans in place that set out how the finance will be structured. The repayment options here are often flexible, again, dependent on the intention of the entity and the structures they put in place. If you are debt-free and have an untarnished credit history, the process to secure these funds independently range from 6 to 8 weeks from date of application. Should you have ongoing issues with debt and/or have blemishes on your credit record, it is likely that this option will be unavailable unless you seek the assistance of a third party.
12. From riches to rags; how not to ‘fix’ your business: Nasty Gal case study
At the end of 2016, online fashion retail darling, Nasty Gal, went under. Ten years previously, Nasty Girl was just another store on eBay. Founder, Sophie Amoruso, grew the online retailer by 500% each year on average and opened doors across the US. At its height, Nasty Gal was valued at around $200 million. Ms Amoruso was living the small business owner’s dream. What happened, to lead Nasty Gal to file for bankruptcy; sold for less than 10% of its worth? Nasty Girl was its own worst enemy Easy. Nasty Gal was too successful, too quickly. Nasty Gal was uniquely positioned to take advantage of the aspirations of millennial women. Sophie’s rags to riches story (so to speak), the scent of female empowerment, the edginess of the company’s voice, and the rising star of digital commerce meant that Nasty Girl had all the levers to build an irresistible brand. And build it did. But such enormous growth comes at a cost, and that cost is the toll growth takes on the organisational structure. The systems and processes that support a small-time eBay retailer are somewhat different to those needed to support a multi-store business moving around $15 million worth of inventory each year. Two years prior to Nasty Girl’s fall, the cracks started to show in the form of; several lawsuits from former employees that ostensibly targeted a workplace hostile to women; several lay-offs over the course of the final two years; and most tellingly, a change of Chief Executive. All of a sudden, the extremely positive press Nasty Girl was attracting had soured. Such things aren’t just symptomatic of poor performance, they are symptomatic of a toxic culture, and a toxic culture doesn’t happen overnight. I would suggest that Nasty Girl was well on its way to ruin by the time we could smell the fire. Certainly, by the time Nasty Girl started to explore its options, it was a case of too little, too late. One simple solution could have solved the problem What could have rescued the company from its disappointing fate? The easy answer is to build for growth. Put in place the right systems early, and you’ll never run the risk of outgrowing your shoes. But for most businesses, this isn’t possible. With all the things the average business owner needs to keep in mind, from sales, to right-sizing, to finding finance, there’s not a lot of opportunity to explore aspirational systems. So what’s the alternative? Restructure, restructure, restructure. I’m not talking about on-boarding new staff, or switching to enterprise software. I’m talking about significant changes to the way a business operates. Reorganising the internal structure of a business should be done regularly to better match its needs and achieve balance. There will always be tensions that cause stress for a business both internally (e.g. stakeholder expectations) and externally (e.g. obligations to creditors). These will forever need to be redressed by the savvy business owner. My advice? Have someone look over your business early, and often, so you don’t go down the road Nasty Girl did, and watch your hard work crumble to dust overnight. Looking for somewhere to start? Check out our top four tips for a successful business restructure. It’s important you get a sense of what you’re trying to achieve before handing over to a so called ‘expert’. You should always be in control of your business. Then, go out and find someone you can trust to advise you. If you think My Business Path might be that someone, give us a call today for a no obligation chat about where you are with your business.
Cut off the arm to save the body: Quiksilver case study
How hard is it to systematically dismantle your business? Every business owner knows that launching is often the most difficult part of any new enterprise. But deciding when to draw the line on an underperforming product or service or, as in the case of Australian icon Quiksilver, an entire branch of the company can be equally as tough. In September of 2015, Quiksilver’s U.S. operations filed for Chapter 11 bankruptcy in the US court system, a move that allows the company to continue trading while undergoing a reorganisation process to better service their debts. Quiksilver’s troubles in the U.S. trace back to 2013, having made a loss that year of $309.4 million and suffered a drop in sales of 14%. These losses were in part due to Quiksilver’s difficulty in adequately capturing its core demographic of active young people in the United States. Despite this inability to attract attention to their brand, Quiksilver optimistically moved into U.S. department stores, a move that would have been costly to effect even if the company were able to move sufficient stock to cover the expenses. The brand’s inability to appeal to young people in America remains a significant issue and following their filing for bankruptcy, Quiksilver president Greg Healy noted that the debt incurred from these failings were instrumental in their decision to place the company under what essentially amounts to administration. This news followed that of the opening of Quiksilver’s 16th Boardriders concept store here in Australia in the same month and Mr Healy was prompt in pointing out that Quiksilver’s “European and Asia-Pacific businesses and operations remain strong and are not part of this filing.” Quiksilver had made the decision to cut off the arm to save the body. Investing heavily in their U.S. operations despite the failure of their brand in attracting their core demographic, Quiksilver continued to make optimistic moves that reflected their global growth, rather than their local losses. Realising the flaw in their logic, they acted quickly to save their company before it went under and more importantly, before it started to significantly impact their global offerings. Quiksilver U.S. is now undergoing a ‘debtor-in-possession’ plan with Oaktree Management which will provide around $175 million in financing to the company as it is reorganised to address their debts into the future. It might be hard to know when to draw the line and harder to act on an underperforming offering, especially when you’ve invested heavily in it. But take a page out of Quiksilver’s book, because suffering a setback on something you’ve worked hard for is almost always better than losing everything.
Common Terms Explained: Director Penalty Notice
Have you received a Director Penalty Notice (DPN)? If so, you need to move very quickly or you could lose your house, literally. What is a Director Penalty Notice? A DPN is a warning issued by the ATO informing you that they’ve decided you’re personally liable for some aspect of your business tax debt. This means that there is some issue with your tax liabilities under the superannuation guarantee charge (SCG) provisions or the pay-as-you-go (PAYG) withholding system. It gives you 21 days to do one of: Pay the sum listed on the notice Place your business into administration Place your business into liquidation However, if there is some unpaid amount unreported during the three-month reporting window for either PAYG or SCG, the ATO may employ the ‘lockdown’ rule. This means that the director must pay the penalty, and cannot place the business into administration or liquidation. What Should I Do? The precise response to Director Penalty Notices depend on your personal circumstances. As soon as the 21 days are up and the DPN expires, the ATO can commence proceedings to recover the amount as yet unpaid. This can extend to your personal assets. As such, upon receiving a DPN, we recommend you seek immediate legal advice to determine your best course of action. This could take one of four forms: Pay the liability Begin administration Begin liquidation Raise a defense to the ATO Director Penalty Notice Raising a Defense to the DPN ATO There a few legitimate defenses that could waive your liability in the short term, for example: Demonstrate that the company was placed into administration or liquidation Show that all reasonable steps were taken to meet tax obligations or respecting tax regulations Show that no possible steps were available to meet tax obligations Demonstrate that the director was unable to manage the company at the time of the liability for a suitable reason. If you have been served a Directors Penalty Notice, or are looking to protect yourself from such a stressful experience, contact a professional immediately. Time is not on your side.
Common Terms Explained: Deed of Company Arrangement
When negotiating with creditors, one needs to be able to assure them that you are looking out for their best interests. A deed of company arrangement, or DOCA, is one such method of assurance. What is a Deed of Company Arrangement? A DOCA is a document that outlines exactly how a company’s affairs will be dealt with. It’s a binding arrangement between the company and the creditors that outlines how the business can continue trading in order to best satisfy the creditors, rather than winding the business up. Firstly, the creditors might vote for a proposal that the company enter a DOCA. If this is the case, the company has 15 days to sign the DOCA. If the company decides not to, or if the company fails to meet the timing, the company automatically enters liquidation. Once in place, the DOCA binds the company, property owners and those that lease property, the secured creditors that voted for the deed and all unsecured creditors and court ordered individuals (even if they voted against the deed). What Doesn’t It Do? A DOCA won’t protect a director from action being taken on personal guarantees. It also doesn’t necessarily mean that all creditors will be satisfied – a creditor must apply with a ‘proof of debt’ and could be rejected from involvement in the DOCA if insufficient. Finally, a DOCA doesn’t leave you free to pursue trading again. It means that your company will be externally administered until the arrangements outlined in the DOCA are satisfied. So, what is a DOCA? A jargon phrase that simply refers to terms of repayment of debt.
Are you owed money? The benefits of outsourcing debt collection
An extraordinary number of businesses in Australia struggle to get their debtors to pay on time. There are a number of good reasons for this. If you’re in the B2C (business to customer) space, you might be familiar with the struggle to manage your invoices and keep track of which client has paid what and when. If you’re in the B2B (business to business) space, you’ve probably been on the other end of some crafty manoeuvring, empty promises, or more straightforward incompetence when it comes to being paid. What you might not realise is that having a debt owing can be an incredible boon in times of financial stress and can greatly increase your cashflow if handled correctly. But while turning an outstanding debt into a benefit can be a real challenge for the average business owner, to a debt collections service it can be a simple task. When should I consider contacting a debt collection firm? If one of the following applies to you, you should think about talking to a debt collection firm: Your customer has exceeded their credit terms You have attempted contact and had no response/payment for 90 days OR You have been in contact three or more times with no payment OR If your customer has indicated a refusal to pay your account If any number of the above apply to you, then you’re in luck. Any debt collections service would generally be happy to take the stress of the debt collection process off your hands. In fact, the sooner you hand them over, the better the outcome tends to be. How do I find out what services I’ll need? Many debt collection firms have a free consultation service. Simply call or email your preferred firm to arrange a free consultation and they will be able to determine what specific services will suit your individual needs. If a firm doesn’t provide a free consultation, it’s worthwhile shopping around until you find one. It may suggest that their business is too small to operate effectively. What information will I need to provide? Although it would depend on the particular circumstances, a debt collection firm would usually require: Any written agreements between you and the debtor Copies of relevant statements, invoices or dishonour cheques A Director’s guarantee However, if at any time you are unsure about what information you should provide, you should get in touch with your collector or collections firm to clarify. The point is to hand off the stress of collections to someone else. What if I don’t know where my debtor is? I cannot speak for other firms, but all that should be needed is the last known address and contact details. From there firms will locate the debtor and charge you only when they are found on a previously agreed fee. What happens if the debt is not collectable? This is especially the case for debts that have been outstanding for a long time – the customer may have gone into administration or liquidation, or may have had action taken by another creditor that impedes their ability to pay you. If you haven’t acted quickly enough, these debts may prove uncollectable. Again, I cannot speak for other firms, but when a debt is considered uncollectable they should inform you immediately and close the file and collect no fee.
An Unusual Debt Solution: Informal Restructuring and the ‘Workout’
There are many ways to deal with creditors that don’t involve getting tangled up in bankers, courts, or trade creditory. If terms like ‘administration’ and ‘insolvency’ leave you terrified, you might be better suited to something like informal restructuring. We have spoken about this before here and here, but as this is a common question we receive, it’s time to do a deeper dive. What Is Informal Restructuring? Businesses can restructure themselves at any time. In fact, the most successful businesses constantly adapt and change to ensure optimal streamlining of processes. Any kind of internally managed change in the structure of a business is called informal restructuring. But in situations where businesses are facing financial distress, restructuring is often overlooked in favor of more immediate (and less beneficial) options, like administration. What Can Restructuring Do for My Cash Problems? Because restructuring is often considered expensive and time-consuming, it may seem counter-intuitive as a tool during times of financial stress. But in fact, it can be the least drastic measure used to save a failing company from toppling over. More to the point, it can be undertaken without going to external parties or seeking the complicated formal protections available under insolvency legislations. How Do I Go About It? It’s just like you’re asking how to restructure a small business but in a more flexible manner. First thing to do is to approach your creditors and negotiate some kind of leeway so you can start the process. This can be done yourself, or by hiring a specialist to handle the creditors for you. This is typically referred to as a ‘workout’ and creditors are often quite understanding if approached in the right way. Once the creditors have agreed to give you the space you need to undergo a restructure, you can begin the process. Considerations for the Workout There is no set procedure for a workout, instead you need to consider your personal circumstances and those relating to the business and design the restructure to address weaknesses and exploit opportunities. In all cases however, you should consider the following: What will the existing debts be exchanged for following the small business restructuring (usually referred to as the debt instrument) What is the equity-debt exchange ratio – often determined by way of a valuation What proportion of the equity dividend will go to creditors How will the residual debt be taxed Final Word The workout is a unique solution for businesses facing crisis, but it is neat and flexible and keeps the matter away from the courts and banks. Handling such things internally is often more beneficial for the business and the reputation of those involved. But such a process can require some finessing, especially as creditors are not always known for their kindness.
5 sure signs your business is on the rocks
Most businesses fail. It’s a fact of the Australian market. Indeed, this is true globally. That’s not to suggest that most businesses need to fail. Incompetence and mismanagement are the number one reasons that an established business will collapse. A crucial step to ensuring that your business doesn’t become just another depressing statistic is making sure you recognise the signs of danger. Is your cash-flow drying up? Cash-flow is the lifeblood of any company. As such, it should be your first weather-vane indication that your business has issues. No liquid assets means no room to move. If your business encounters a crisis situation and you don’t have the cash-flow to manage it, you’re already looking at dismantling other, potentially crucial parts of your business. Your tight cash-flow might be a considered decision, or it may be due to other market conditions, but low liquidity is a problem in and of itself. Figure out what’s cutting into your profit margin and cut back on your expenditure. Are you having trouble securing finance? One very useful sign that you should sit back and take stock often comes at a counter-intuitive time. When a business is seeking to grow, it will look to secure funding or investment. At this time, the business and the directors are at their most optimistic, ready to take on the next leg of business development. It can be puzzling then, to be constantly turned down or pushed back for finance. Lenders wouldn’t be lenders if they were just stingy. What they are, is excellent at assessing risk. If you’re having trouble securing finance, then I would advise you to have a hard look at your business – no matter how good you think your money situation is. Are you having trouble managing your debts? Perhaps you’re in a stabilisation phase, and are merely trying to manage your business after a period of growth or change. You start to notice that meeting your current repayment schedules is more difficult than usual. This is a bad sign. It doesn’t matter if you’re expecting things to perk up or not, if you notice that you’re starting to run afoul of your creditors, you have a serious problem. Whether it’s due to some cash-flow issue, or poor planning on your behalf, falling behind on your debts is the quickest path to insolvency. In this circumstance, there are a few options. Either cut back on your expenditure so you can meet your repayments, or if that’s a problem you should get in touch with your creditors at the earliest possible moment. Seek some professional guidance about how to approach the conversation and discuss your options given your circumstances. I assure you that creditors will prefer a more manageable repayment schedule than you panicking your way into some unresolvable situation. Are you losing clients? Customers are often quite savvy. People don’t like to be messed around. If you can’t retain customers or secure the kind of word-of-mouth referrals that support both ongoing and single-sale business models, then it may be a sign that something more serious is going wrong with your business. Are your workers being treated more harshly because times are tight? This might come out in your customer service. Are you having to cut back on your sales and marketing? The issue here is that low customer retention/referral is going to hurt you more in the long run. You might need to consider cutting back elsewhere to better manage your client base. Or you might just need to consider treating your clients better. Don’t let tough times affect the people you rely on. Do you hate coming to work? We’re not being glib here. Running a business is hard work. It takes a lot of strength some days to pick up the briefcase and walk through the door. But these kinds of moods can devastate a business. A lack of enthusiasm can lead to poor decisions and mismanagement. If you’re struggling to find the value in your business it’s time to consider taking a break, or maybe even moving on. Much better to hand the reins over to someone else, temporarily or otherwise, than running the company you worked so hard for into the ground.
