2 December 2020
If a small business owner starts to feel like running their company is becoming difficult, what should they do?
We know that small business owners put their heart and soul into their business. Ultimately, every business owner wants their business to be successful.
However, when faced with the pressure of trying to save a business that is facing financial difficulties, company directors run the risk of making poor decisions at the expense of others.
Company directors have a legal obligation to act in the best interests of the company, which includes paying creditors, employees and tax debts when due.
When directors don’t act in the best interest of the company, they might be liable for breaching the law. Losing sight of these obligations and responsibilities can have serious consequences.
There are a number of steps a company director can take to respond to challenges within a small business.
First, it’s important to actively monitor the business and understand its financial position – that means keeping accurate and up to date financial and business records.
Second, if you are managing change, planning for the future or if something does not appear right in your business, it is critical to get help early. For example, you might need to engage a financial adviser, accountant, registered liquidator or lawyer. And don’t wait – seeking advice early may provide more options that will help your business to be successful.
And third, develop and implement a plan to help you recognise when things aren’t on track. Your plan might include ways to make improvements and turn around the performance of your business. However, it’s also important to recognise the point at which your business cannot be saved. When you reach that point, speak with trusted advisers and work out the options available and the consequences. These options may affect the company directors in different ways, and they may also have personal implications.
For more information, visit ASIC’s Small Business hub at asic.gov.au/small-business
ASIC is Australia’s corporate, markets and financial services regulator.