You're not alone. Many businesses struggle with cash flow problems and debt recovery – but there are ways to turn things around.
In January 2025, 93 companies in New Zealand entered liquidation. While that number might not seem a lot at first glance, that is a significant number of families & lives disrupted & turned upside down. The emotional cost shouldn’t be understated when a liquidation happens.
This statistic underscores the importance of proactive financial management to prevent such outcomes.
Struggling to pay suppliers on time, constant cash flow shortfalls, and increasing debt are clear warning signs that your business may be in financial trouble. If you're regularly relying on credit to cover day-to-day expenses or receiving pressure from creditors, it's time to take action before the situation worsens.
There are a number of reasons why these liquidations happen, but from what I have seen & the business owners that I have worked with it normally comes down to cash – not enough of it! A simple challenge that some business owners have is collecting money owed to them. To that end any business needs to have a structure around collecting their aged receivables.
- Assess Your Financial Health: Conduct a thorough review of your cash flow, debts, and liabilities to understand your current position.
- Identify Warning Signs: Look out for indicators like consistent cash shortages or mounting unpaid invoices.
- Develop a Plan: Based on your assessment, create a strategy to address financial weaknesses. Communication is vital. If you’re not paying people they’ll want to know why & what your plan is. In my view silence is a bad option!
Ignoring financial issues won't make them disappear. Early action is essential to steer your business back on course.
- Consult Experts: Speak with your accountant & trusted advisors early. If you are ‘going it alone’ & think that liquidation is the path you’re on, then contact insolvency specialists who can provide tailored guidance. An early conversation may mean that you’re able to turn things around or look at options you haven’t considered.
- Don’t keep digging the hole: Continuing to trade when your business is no longer viable & heading towards insolvency can lead to deeper debt and personal liability, putting everything you’ve worked for at risk. No matter how much you want to succeed, sometimes the smartest move is to step back, protect your remaining assets, and focus on rebuilding in a more sustainable way.
- Explore Alternatives: Consider options like restructuring or voluntary administration before resorting to liquidation. You might have your head so buried in the business that you can’t see this, but there are normally multiple things you can consider in the early stages. The longer you leave it, the narrower your options become.
- Understand Legal Implications: Ensure you're aware of the legal responsibilities and consequences associated with each option. As a Director there are specific responsibilities that sit with you.
- Without wanting to get too technical under the New Zealand Companies Act 1993, directors have a legal duty to ensure their company remains solvent.
- Section 135 states that directors must not allow the business to be carried on in a way that is likely to create substantial risk of serious loss to creditors.
- Section 136 further requires directors to ensure the company can meet its obligations before incurring new debts. If a company is insolvent or nearing insolvency, directors must act in the best interests of creditors, seek professional advice, and avoid trading recklessly. Failure to do so can result in personal liability, fines, or even bans from serving as a director.
Professional insights can offer new perspectives and solutions you might not have considered.
- Evaluate Business Viability: Determine if your current business model is sustainable in the long term.
- Avoid Further Losses: Resist the urge to invest more into a failing strategy without clear evidence of potential turnaround.
- Consider Strategic Changes: This might involve pausing operations, diversifying offerings, or targeting new markets.
Recognising when to change direction can prevent deeper financial woes.
- Learn from Challenges: Use this experience to identify areas for improvement and growth.
- Set New Goals: Focus on rebuilding with a stronger foundation and clearer objectives.
- Maintain a Positive Outlook: You will get through this. That might be easy to say, but from what I have seen once the liquidation process is underway it is like a huge weight is lifted from your shoulders. Remember, many business owners have faced setbacks and emerged stronger.
Your current situation doesn't define your future; resilience and adaptability do.
And remember, with the right support and strategy, you can navigate this storm and set sail toward a prosperous future.
