Claude Trimboli, Accountant and Liquidator, on how small business owners can better manage debt to avoid insolvency.

[00:00:00] Hi, it's Michael Kerr here, presenting Small Business Banter.

[00:00:12] Welcome to the Small Business Banter podcast. I'm Michael Kerr, your host, and I'm also the founder of Kerr Capital, where I work day-to-day with business owners.

[00:00:20] The Small Business Banter podcast is built just for business owners and will be especially relevant if you're an owner looking to sell, if you've been unexpectedly approached by a potential buyer, or if you're an aspiring owner about to buy a new business.

[00:00:36] There's a lot on the line personally and financially. It's stressful, it's emotional, and it's usually new territory.

[00:00:45] So to help, each episode of Small Business Banter is a discussion between me and another business owner or an experienced small business advisor.

[00:00:54] We talk about their experiences. So what you'll get is practical, real-life advice, different takes on everyday problems,

[00:01:04] and a renewed confidence to tackle your own business challenges.

[00:01:23] Okay, welcome into edition 146 of Small Business Banter. Michael Kerr, your host. I'm very pleased to welcome in Claude Trimboli.

[00:01:32] Good morning, Michael. Fruity to be here. Thanks for having us. I'm looking forward to the opportunity to share some insights and help some small business owners.

[00:01:41] So we were just chatting and we started to talk about your professional life and what we're going to be chatting today about.

[00:01:49] Claude is an insolvency practitioner, restructuring practitioner, and we'll dive into that.

[00:01:56] Claude was just mentioning that you grew up in a small business family.

[00:02:01] Do you want to just tell us, repeat what you told me, because it's very relevant to our audience.

[00:02:06] And then lead on to where you are today and then we'll dig into this topic of insolvency.

[00:02:12] Yeah, absolutely. Thanks, Michael. Yeah, I was saying prior to going live on air, so Melbourne born to Italian immigrants.

[00:02:21] Yeah, mum and dad did a junior high school. Dad was a shoemaker. Mum was a housewife.

[00:02:27] We grew up in the inner northern suburbs of Melbourne. So I literally helped dad make and sell shoes from the age of 10.

[00:02:37] So I had a front row seat, Small Business 101, which I'll call it, with dad making shoes and selling them around town.

[00:02:47] So I know the trials and tribulations that small business owners go through.

[00:02:52] And family business, yeah.

[00:02:54] And especially family businesses and the challenges that family businesses face and sitting around the dinner table and the like.

[00:03:04] And, you know, there are challenges. We all know that as a small business owner.

[00:03:09] But then you have family dynamics at play as well. So, as I said, I've had a front row seat from the age of 10.

[00:03:17] Business resonated with me. I just enjoyed the aspect of business.

[00:03:22] And then that led me into some high school studies, which were very focused on business economics and accounting.

[00:03:30] Then went into university, lucky enough to complete a degree in business with a major in accounting.

[00:03:38] Then I landed at a national accounting firm in Melbourne, top 10 firm with various divisions.

[00:03:46] And as luck would have it, I was working in the insolumency restructuring division of that firm for about four years.

[00:03:55] During that time, became a chartered accountant, qualified chartered accountant.

[00:04:00] Then I ran a passage, went to London, where I lived and worked for about three years, always in the insolumency restructuring space.

[00:04:09] Returned to Melbourne, where I kind of retooled on the Australian insolumency restructuring dynamics.

[00:04:16] Then about 10 years ago, I set up my own shop.

[00:04:18] So, we run a boutique restructuring insolumency firm from the Melbourne CBD.

[00:04:23] So, we work with a lot of small business owners who face challenges that we all do as small business owners from time to time.

[00:04:30] What's the name of the firm, Claude?

[00:04:32] Yeah, good question.

[00:04:32] Charles & Co.

[00:04:33] So, the firm is called Charles & Co.

[00:04:35] To connect the dots, it goes back to my father in a way.

[00:04:39] So, my father's name is in Italian.

[00:04:42] It's Caramello.

[00:04:43] But when he came to Australia in the 60s, most people called him Charles or Charlie.

[00:04:49] So, it's kind of a tip my head off to dad because, as I said, as a 10-year-old, he taught me the ropes on small business.

[00:04:58] Yeah, on cobbling, being a cobbler.

[00:05:01] Yeah, absolutely.

[00:05:02] Absolutely.

[00:05:02] Like, yeah, up in the northern suburbs of Melbourne, what a rich history and culture up there.

[00:05:09] We were up there last weekend and drove up and down Sydney Road.

[00:05:14] And you can see the remnants of some old shoe shops and factories.

[00:05:18] So, it's a wonderful place.

[00:05:19] So, now you're in the thick of insolvency and restructuring.

[00:05:24] So, what we want to do today is talk about insolvency, why it happens, what are the risks that you might see coming in a business.

[00:05:32] You need to do something about to avoid an insolvency.

[00:05:35] What are the ramifications personally, legally?

[00:05:39] And you've no doubt had plenty of exposure to business owners and you've seen some good outcomes and maybe some really sad outcomes.

[00:05:47] So, I guess we're trying today to explain a little bit more about what insolvency is and the related areas of restructuring so that owners can perhaps be better placed to see where they're in trouble.

[00:06:02] And then ultimately take some the right advice to try and avoid that.

[00:06:07] At its very core, can you just talk briefly about insolvency, what it is and what are the basic ramifications for an owner?

[00:06:15] The basic level, if a business is unable to pay its debts as and when they fall due, that's the technical definition of insolvency.

[00:06:24] And it comes down to your cash flow test, your liabilities more than your assets.

[00:06:30] And if it becomes too overwhelming for a business owner where they cannot pay those debts, the business owner under the Australian law has an obligation.

[00:06:40] If the company is not able to pay those debts as and when they're foredure, not to trade the business because it is insolvent.

[00:06:48] And if they continue to trade under that insolvency dynamic, business owner, director can be held what we call personally liable.

[00:06:57] So as we know, when you set up a company, there is a separate legal entity between personal debts and company debts.

[00:07:04] A business owner wants to avoid that.

[00:07:06] That's at its basic terms.

[00:07:08] And if the business owner decides to place the company into an insolvency event, they come and see someone like me where in simple terms, we sell all the assets to the company, put that into a pot and then pay down liabilities of the entity.

[00:07:23] Once we've done that, the company is then deregistered.

[00:07:26] It is an exit strategy from that point of view.

[00:07:30] You referred specifically to directors and companies there.

[00:07:33] So if an individual business owner was trading as a sole entity, are they carved out or are there a different set of responsibilities?

[00:07:42] Question.

[00:07:42] So you've got to separate the two.

[00:07:44] We have companies.

[00:07:45] So when you set up a company and you have a director and shareholders and a director can trade that company.

[00:07:52] And the beauty of that is you have your separate legal entity.

[00:07:55] So under the company laws, the company's liable for those debts.

[00:08:00] Then on the other side of the coin, you can have a sole proprietor where you're running a business as a sole proprietor.

[00:08:07] And if you do that, then you can become bankrupt personally.

[00:08:12] So they're the two distinct, the two separations.

[00:08:17] Yeah.

[00:08:17] And that's why a lot of small businesses, even with one employee essentially and one shareholder, often structure with a company for that very reason to have primarily the company responsible for the debts.

[00:08:33] Even though the reality is if you're going to borrow, you're probably signing a guarantee.

[00:08:38] But there is at least some separation prima facie between you and the entity, the company.

[00:08:45] Yeah.

[00:08:45] That is the benefits of setting up a different structure is to segregate the debts between company debts and personal debts.

[00:08:55] And that is why when that company is not able to pay its debts is when the twilight zone of personal responsibilities comes into play.

[00:09:04] So that's in its basic terms insolvency.

[00:09:08] And then if the director decides to put the company into a liquidation scenario, they can appoint someone like me to liquidate the company.

[00:09:17] In simple terms, what we do, we sell the assets of the company and then pay down the liabilities.

[00:09:23] So the owner loses control.

[00:09:25] In an insolvency, they've lost control of their business if it gets to that stage.

[00:09:31] And this is the, I guess, the nub of the conversation today is that you referred to the twilight zone.

[00:09:37] And as an owner operator of a business, and let's for the moment put aside the structure, whether you're a company or a sole trader, you've got to know the point where you can't pay your debts.

[00:09:48] What should we have been doing weeks before that to try to avoid the really awful scenario of an insolvency where you do lose control and you take control, sell assets, and it's all over.

[00:10:05] So if we go back in the cycle, what are we talking about for an owner to proactively do to avoid this?

[00:10:14] Liquidation is the last resort.

[00:10:17] It is an exit strategy of the business.

[00:10:20] You want to be proactive.

[00:10:22] The critical aspect is, and unfortunately I see this a lot of the time with small business owners, it is a head in the send mentality sometimes.

[00:10:31] So it comes back to the basics.

[00:10:33] The critical aspect is to have some really good understanding of the numbers.

[00:10:39] I go back to accounting.

[00:10:43] Accounting is the language of business.

[00:10:45] So as a business owner, perhaps you need to get a basic understanding of the numbers, if not a good advisor to help you with that.

[00:10:55] When I started 20 odd years ago in this industry, we used to, you know, the books and records were in a box and they'll deliver that box to you.

[00:11:06] Now with the beauty of cloud accounting, it is a great tool for business owners to use properly, accurately, and that's kind of your first line of defense.

[00:11:18] If you've got a really good read on the numbers, you know, your basics, money, income, money going out, and you can review that on a regular basis, whether it's weekly or monthly.

[00:11:32] So, you know, you can see sales are deteriorating.

[00:11:36] You can be proactive and say, okay, sales have gone down a little bit.

[00:11:41] What can we do to pick up sales?

[00:11:42] And if you see perhaps certain costs increasing, you're spending too much money on perhaps fuel or marketing, can we adjust the cost structure?

[00:11:55] So it goes back to, you know, money in, money out.

[00:11:59] Yeah.

[00:12:00] And having that real discipline, whether it's weekly or monthly, that you're really disciplined around the numbers.

[00:12:09] Yeah.

[00:12:09] I always use the health analogy.

[00:12:12] You know, you might have an illness, but the sooner you identify that illness, the more options and time you have to actually cure that illness.

[00:12:22] Yeah.

[00:12:24] There's the evolution of cloud accounting and the ability that most business owners I've ever met, just about every one of them, knew exactly how much was in the bank or not.

[00:12:37] And if there were creditors screaming or if there were – but I think the point is to go back.

[00:12:47] There's – that's – you know, at that stage, that's managing by the seedy pants.

[00:12:52] And what we're trying to say is that there's information available.

[00:12:57] And if it's not you, certainly you're sitting with your accountant and going through the numbers, but also understanding the numbers.

[00:13:05] Like this is the power of this cloud accounting.

[00:13:09] It's also – it's not just a – if you want to drill down, you can start to look at your business from the point of view of what bits are profitable, what's not.

[00:13:18] And profit doesn't equal cash flow, but, you know, if you're going to fundamentally make your business better, you need to understand every line of your P&L.

[00:13:29] And from that, you start to say, well, I don't need that expense or I need to drive more of these sales or I need to get rid of that stock.

[00:13:38] Or the trick is taking time out of a very busy day or week to look at your numbers with a little bit more of a microscope and not just feel like you've met your compliance obligations and you're okay.

[00:13:53] The point you make about the ability to really deeply understand your business from your cloud accounting numbers and yourself or with a good advisor is well made.

[00:14:03] Yeah, and like you said, Mark, we're having the discipline where you sit down, you spend an hour or two a week and you get a really good feel where you're at early and if things are turning south, you can correct course instead of waiting too late is when sometimes people come and see us.

[00:14:25] So, yeah, early action, early identification and being proactive, putting a two or three step process in place where you're constantly looking at those numbers gives you the better options of surviving and turning the ship around.

[00:14:41] Yeah.

[00:14:42] So, at the moment, pretty broadly, I think the sentiment is that the economy is pretty tough.

[00:14:49] I think there are businesses out there that know how to manage their way through just about anything.

[00:14:56] But are you seeing an uptick in insolvencies?

[00:15:00] The last two episodes, interestingly, of Small Business Banner have been Olga Kosky who's a practitioner in managing tax office debt, which is the tax officer going after more businesses now for debts that have been outstanding for a long time.

[00:15:19] So, that's another potential trigger.

[00:15:21] And we also had James Meldrum come in and talk.

[00:15:25] He's at the end of a voluntary administration nearly after 12 months and 18 years in business.

[00:15:31] And there was some really sobering but really helpful advice in both of those discussions.

[00:15:37] James and his wife, Monica, had a very complicated, a lot of quite a few external factors.

[00:15:42] But 18 years into going to VA was heartbreaking.

[00:15:46] He reflected on what he learned and that was really helpful.

[00:15:49] Olga, very much like you, was talking about not putting your head in the sand and communicating with the ATO in that case.

[00:15:58] So, yes, are you seeing more insolvencies and what's primarily driving them?

[00:16:04] Yeah, we'll have to go back a few years to realise where we're at in time.

[00:16:10] We do go through cycles.

[00:16:12] So, we've had a very low interest rate environment for a very long time.

[00:16:16] Then COVID hit our shores or all shores around the world.

[00:16:21] And the government did what the government had to do.

[00:16:23] Interest rates went to zero, literally.

[00:16:26] We had a lot of stimulus in Australia and the world.

[00:16:31] I think the Morrison government spent about $500 million worth of stimulus packages.

[00:16:35] And then we had the tax office historically collecting tax debts.

[00:16:41] But during those two, three-year period hitting pause on tax collections and actually, you know, providing funding to small businesses via JobKeeper and Cashflow Boost and the like.

[00:16:57] And that caused, you know, probably unintended consequences.

[00:17:02] You know, at that point in time, we all thought it had to be done.

[00:17:06] You know, fast forward four or five years later now and that's kind of turned.

[00:17:12] We've had interest rates increase dramatically in a space of a very short time.

[00:17:17] We've had, you know, inflationary pressures, cost of business have gone up dramatically, especially in the construction space.

[00:17:25] And then the tax office, we had, and probably Olga touched on this in the last episode.

[00:17:32] Last reading, I think in 19, collective tax debts were about $25 billion.

[00:17:38] They doubled in about five years.

[00:17:40] I think we're about $50 billion at the moment.

[00:17:43] And small businesses make 65% of that, which is about $30, $35 billion worth of outstanding tax debts.

[00:17:52] And now that's what's driving some challenges in the small business community, business in general, which is increased insolvencies to actually record levels.

[00:18:03] I think we had on ASIC numbers, 11,000 nationally of companies going into external administration in 23-24.

[00:18:14] The last peak was around 10 years ago in 2013.

[00:18:18] But also some context.

[00:18:19] I think there's about 3.4 million companies in Australia.

[00:18:24] So 11,000 divided by 3.4 million is about 0.3% of companies going to external administration.

[00:18:34] And in 2013, we had about 2 million companies.

[00:18:38] So there was about 0.5% of companies going to external administration.

[00:18:41] So in context, in comparison, although the numbers are big, given the broader economy of Australia, the numbers are still proportionally okay.

[00:18:52] Yeah.

[00:18:54] Saying that, it is a challenging time because of interest rates and the tax rate.

[00:18:59] The tax rate is a bigger striver.

[00:19:01] Right.

[00:19:02] Especially in these small businesses.

[00:19:04] So we see a lot of inquiries off the back of the tax office being more aggressive in that regard.

[00:19:16] Yeah, definitely.

[00:19:17] And it's pretty hard to hide from the ATO.

[00:19:20] It is.

[00:19:21] Because, as I said, it goes back to the unintended consequences.

[00:19:25] The tax man was very accommodating for a very long time, which may have, you know, changed business owners' perspective a little bit.

[00:19:36] It's unfortunate, but there's been a massive buildup of tax debts.

[00:19:40] Yeah.

[00:19:41] Over the period of time.

[00:19:43] But you're right.

[00:19:44] You've got to engage.

[00:19:45] Back to your point.

[00:19:46] You have to engage with the tax office.

[00:19:48] Yeah.

[00:19:48] So heading the same mentality won't work.

[00:19:51] Yeah.

[00:19:51] Because they'll push really hard.

[00:19:53] And the two biggest tools they're using is what we call a director penalty notice, which goes back to what we discussed earlier in regards to the corporate entity.

[00:20:03] So under a corporate entity and you're a director of a company, those tax debts are quantified within the corporate structure.

[00:20:14] But the ATO has a strong tool to issue what we call a director penalty notice, giving the director literally 21 days to do one of three things, which is pay the debt.

[00:20:30] Small business restructuring, we'll touch on shortly, which is a new restructuring tool for business owners.

[00:20:38] Liquidate or put the company into administration.

[00:20:41] If you don't do one of those three things in those 21 days, the director becomes personally liable.

[00:20:47] Going back to that.

[00:20:48] Yeah.

[00:20:48] And 21 days is such a short amount of time to, if you haven't thought through your options, I can imagine it would just completely overwhelm anybody that gets one of those DPNs.

[00:21:05] It is very overwhelming.

[00:21:09] Yeah.

[00:21:10] It's kind of the ATO's, I think, like it goes back to engagement.

[00:21:13] It is the ATO's kind of second last resort.

[00:21:16] Because after the director penalty notice, they generally go down the path of winding up the company.

[00:21:22] Okay.

[00:21:23] Yeah.

[00:21:23] And yeah, so it is a last resort.

[00:21:25] It goes back to engagement, engaging with the ATO, with your current advisor, hopefully putting a payment plan in place to manage that tax down.

[00:21:38] But what we're also seeing in our space is what we call a small business restructuring.

[00:21:44] I think you touched on business owners losing control when a company goes into liquidation.

[00:21:53] So because of COVID, the government in 2021 introduced a new insolvency regime, you call it.

[00:22:02] It's called a small business restructuring.

[00:22:04] It's a mechanism where a business owner can engage someone like myself to look at his business and work out if that business was to liquidate, what would be the return to the creditors.

[00:22:19] It's generally the ATO.

[00:22:20] And then propose a plan to the tax office, which is a better outcome than liquidating the business.

[00:22:28] And during that process, the business owners actually remain in control of the business.

[00:22:33] Yeah, it is a strong tool.

[00:22:36] It has been the flavor of the month for us.

[00:22:38] We've had about literally one a month that we've engaged with business owners and we've been able to get compromises on tax debts, which is manageable and gives the business owner a reset where the balance sheet is reset at a reduced compromised liability position.

[00:22:57] So it's been really helpful.

[00:22:58] Yeah.

[00:22:59] Okay.

[00:22:59] So it's a bit of breathing space, but the owner's got to be all over how am I going to restructure the business and how am I going to communicate with the ATO?

[00:23:10] Is it generally the ATO or are there other creditors bringing actions as well?

[00:23:17] It is generally the ATO at the smaller end of town, Michael.

[00:23:23] Yeah.

[00:23:24] Because as we know, you don't have to pay the tax office to keep the lights on in the building.

[00:23:29] Yeah.

[00:23:29] Pay your employees to keep on coming back to work or pay your supplier to, you know.

[00:23:36] To deliver the goods.

[00:23:38] Yeah.

[00:23:39] To deliver the goods or the coffee to make the coffee.

[00:23:41] Yeah.

[00:23:41] So generally speaking, the tax office, you're able to delay paying the tax office.

[00:23:47] Yeah.

[00:23:47] And they're generally the biggest creditor in an insolvency situation.

[00:23:52] Yeah.

[00:23:53] Okay.

[00:23:53] So in that scenario, you'll get a hell of a shock about the value or the realizable value of your business, which is probably negative in many cases, unless you can restructure and the debt and pay back over time.

[00:24:09] I'm assuming that mostly it's pretty, you know, well negative and probably very sad after X amount of years of putting in a lot of yourself and time, energy, money and having facing down, looking down the barrel of a negative equity in your business.

[00:24:28] Yeah.

[00:24:28] It's a tough part of the space that we work in.

[00:24:32] I go back to my formative years as well with dad and being a cobbler.

[00:24:37] He put a lot of years into that business.

[00:24:41] Luckily, he was able to survive through the ups and downs, especially the 90s recession when interest rates were, it tells me, 15%, 17% reflecting the other day with him because I was complaining about interest rates being, you know, 4.5 at the moment.

[00:24:56] Yeah.

[00:24:56] So he had a giggle at me.

[00:24:58] Yeah.

[00:24:58] So, yeah, no, blood, sweat and tears.

[00:25:02] It is unfortunate when that business owner has a realization over many, many years there is no significant value in those circumstances because of the buildup of some tax debts and liabilities.

[00:25:16] It is, yeah.

[00:25:17] It's, look, I do want to come to that and talk about some of the stories, the good and the bad, but, and the impact on the individual and the impact on you because I'm sure you see some really awful situations that you wish didn't happen.

[00:25:39] Hi there.

[00:25:40] It's just a quick interruption to the podcast and it's a message from Kerr Capital, a supporter of the podcast.

[00:25:46] If you're a business owner thinking about selling and you're unsure about what you should do, well, the worst thing you can do is jump straight into an unprepared business sale.

[00:25:56] Cross your fingers and hope for the best.

[00:25:58] If you want to take control, get a sense of what your business is really worth and a plan to make it more sellable, then head over onto the Kerr Capital website.

[00:26:08] Check out the value and sellability diagnostic.

[00:26:11] If it piques your interest, contact me, Michael Kerr, or book one of the free 45-minute diagnostic calls.

[00:26:18] Now let's head back to the podcast.

[00:26:20] So when this small business restructuring, it creates a bit of time and space for the owner, you're involved and other restructuring advisors are involved keeping an eye on the business and the owner.

[00:26:40] So obviously there's an upfront effort to try to restructure the business, restructure the debt.

[00:26:47] So is that a lot of cash flow analysis to drill down on what the business can comfortably repay while meeting all its other obligations and then more regular reviews of cash flow projections?

[00:27:03] Is that the guts of it?

[00:27:04] It is a very short timeframe.

[00:27:07] It's usually 35 business days that the whole process entails.

[00:27:14] In 20 business days as advisors, restructuring advisors, as I said, we sit down with the business owner and its current, generally speaking, the accountant and go through from our experience because we've done so many liquidations.

[00:27:33] We have got a really good knowledge if you liquidate this business, what's the outcome?

[00:27:37] So it's a starting point.

[00:27:39] And typically in a liquidation sense, is that really an auction of an ad in the paper and an auction of assets at whatever you can clear them at?

[00:27:51] Is it that dramatic?

[00:27:53] Well, you haven't got much time.

[00:27:54] So you're right.

[00:27:55] We advertise.

[00:27:56] We do social media channels these days through auctioneers that we use, through other social media.

[00:28:05] We do have a very quick sales process per se.

[00:28:10] But from a small business restructuring point of view, we don't do that advertising.

[00:28:14] We do a high-level review.

[00:28:17] What will be the outcome to the creditors, generally the ATO?

[00:28:22] And then work backwards because reverse engineer.

[00:28:25] So this is a liquidation scenario and it might be, hypothetically speaking, it might be 10 to 20 cents in a dollar potentially.

[00:28:35] To the creditors.

[00:28:36] To the creditors.

[00:28:37] Yeah, nothing to the owner.

[00:28:39] Unfortunately, when it gets to that kind of level, there'll be nothing to the owners.

[00:28:43] It's a way of restructuring your debt.

[00:28:46] So that's kind of our baseline starting point.

[00:28:50] And then from there we work out, okay, you've got to offer the creditors a bit more than that.

[00:28:56] So it might be, you know, 25, 30 cents in a dollar.

[00:28:59] So how much money is required?

[00:29:00] So there's two ways you can make that payment.

[00:29:04] It could be for a lump sum payment in, you know, 60, 90 days.

[00:29:08] And we need to work out with the business owner whether he's got the means to do that.

[00:29:14] And then we communicate that to the creditors, generally the ATO.

[00:29:20] Or if it's from monthly cash flow projections, we sit down with the business owner and the current accountant and get an insight into the cash flow projections.

[00:29:33] And, you know, and we say to the creditors, i.e. the ATO, we've looked up the cash flow projections and we feel comfortable that the assumptions are reasonable given the circumstances.

[00:29:46] And the business owner can make these payments over a period of time to compromise that debt.

[00:29:52] So that's all done in about 20 business days.

[00:29:55] Yeah, yeah.

[00:29:55] So, yeah, it's very incredibly hands-on and dynamic.

[00:30:01] It's probably underselling how, you know, how quick and high stakes it is.

[00:30:08] Yeah, but there's a lot of pre-planning leading up to that as well, Michael.

[00:30:13] And it goes back to being proactive and reaching out to someone like me with your advisor when we sit down.

[00:30:20] And, you know, the first option is always to what we call informally restructure the company's affairs.

[00:30:27] We put some, you know, three or four key points in place to, as we said, can we increase sales?

[00:30:34] Yeah.

[00:30:34] Can we cut some costs?

[00:30:37] Can we rationalize the business, just get back to its core?

[00:30:40] Yeah.

[00:30:41] And focus on that.

[00:30:42] So that is the first step.

[00:30:45] So can you do that?

[00:30:46] If you can do that and work your way through those challenges, fantastic.

[00:30:53] But then if that's not working, you go probably to phase two, which is what we call a formal restructure for the small business restructuring.

[00:31:04] Or if you don't qualify for the small business restructuring, because there's qualifications dynamics, you look at doing a voluntary administration, deed of company arrangement.

[00:31:14] So a deed of company arrangement where you compromise debts and hopefully you can continue the business.

[00:31:20] And then third phase is the final phase, close the chapter, liquidation.

[00:31:25] So it's kind of the three levels of the work that we do.

[00:31:28] It seems like the ATO is at the bottom of a lot of the work you do and you can't ignore it.

[00:31:37] They're not a bank.

[00:31:38] They're chasing money.

[00:31:40] So it goes to getting on top of your business.

[00:31:44] And look, I, you know, I look at numbers pretty much every day leading into the sale of a business and what's it worth.

[00:31:55] And I sometimes, you know, evaluate it from the point of view of what's it worth if we have to sell tomorrow?

[00:32:03] And what about in three years if you change a few things?

[00:32:05] So it's not dissimilar to the process you go through, but it's always, mostly it's a shock or, and some owners then decide they're going to do something about it and some don't.

[00:32:18] Don't, but I think central in all of this is having a better handle on your numbers.

[00:32:25] And it's, everyone gets jacked off with all the, the compliance, but with cloud accounting, you can, you can nail all that stuff pretty, pretty easily.

[00:32:37] But you can go a step or two further and, and use your numbers to evaluate your business.

[00:32:43] And it, it, it intrigues me every time I look at a set of numbers that owner's been in that business for 10, 20, 30, 40 years.

[00:32:52] And it is their business.

[00:32:54] And they think of it in a particular way.

[00:32:56] And so often that business is actually two or three different kinds of businesses.

[00:33:03] And it's, they're really hard to classify and, you know, to then to explain to somebody else, if it's a cafe that serves coffee and toasties, it's pretty straightforward.

[00:33:13] But there's a hell of a lot of businesses that are a mixture of wholesale, retail, online services, repairs.

[00:33:21] Like when you're wanting to sell your business, you don't want to leave that to the end.

[00:33:25] You want to be working on potentially selling off some parts of those business or streamlining it or restructuring without the threat of any debt recovery, just because it makes it a more sellable, more valuable business.

[00:33:41] And, but it's just about numbers and getting over, do your compliance, but then go to the next stage.

[00:33:47] And what is, what is the underlying performance of my business?

[00:33:51] Can I make my balance sheet work better for me?

[00:33:54] And, but, you know, especially if you've got ATO debt or other banking debt that's challenging you, just got to go and get on with your numbers.

[00:34:05] So do you get owners reaching out to you typically, or is it their advisors, their accountants?

[00:34:12] 80% of our business comes from other accounting firms.

[00:34:16] So your, your, your, your, your, your, your, your, your, your, your, your, your trusted advisor.

[00:34:21] Yeah.

[00:34:22] Um, who's dealt with that business owner for many, many years.

[00:34:26] Um, we've built some really good relationships with those accounting firms around Melbourne.

[00:34:33] Um, and they trust us because yeah, we, we, we do, um, we do, um, we do the work with, we, we're very collaborative as well.

[00:34:41] Um, uh, it goes back to what you touched on before.

[00:34:44] Yeah.

[00:34:44] The hardest bit is to say, uh, business owners go through an insolumacy situation.

[00:34:51] Um, but also the most rewarding is to help them come out of that particular, um, dark, we're called dark phase.

[00:34:58] And I've seen evolution over the 20 odd years, um, in regards to the resources, which are at our disposal and the awareness of the community, uh, mostly around mental health.

[00:35:13] As we all know, it is a, it is a tough spot to go through.

[00:35:16] And sometimes as business owners, we just get into our little heads and pride comes into place and we want to show that we can do it all and do it all.

[00:35:27] Um, but yeah, no, we've got some really, for example, behind blue, um, which I generally, uh, guide business owners to, to consider.

[00:35:35] There's some really good tools around that.

[00:35:37] Yeah.

[00:35:38] And I use them as well in my first two, three years of business.

[00:35:42] Um, yeah, taking care of yourself, number one.

[00:35:46] Um, you know, number one is just take your mind, your body, your spirit.

[00:35:50] Um, have some really good daily, um, practices, whether you go for a walk or go for a swim or whatever you do, kick the ball around or walk the dog.

[00:36:00] Um, just something to clear the mind.

[00:36:02] Yeah.

[00:36:03] Um, and then, you know, eating healthy, then they get unhealthy.

[00:36:07] You know, sometimes we look for that comfort food or that comfort drink, a glass of wine and, you know, good night's sleep.

[00:36:12] Just some really basic daily tools, which helps you, um, helps you also perform better.

[00:36:19] Uh, it gives you a clear mind and step back and take a deep breath and speak to people, communicate and just reach out.

[00:36:26] Um, because, um, if you talk to people, you just kind of work the problem and you get solutions.

[00:36:30] Yeah.

[00:36:31] Better like that.

[00:36:32] Yeah.

[00:36:32] And we, we both talked about head in the sand and it, it kind of can sound a little bit derogatory, but I know we, neither of us mean that.

[00:36:41] What we mean is get, you know, talk to some others, your trusted advisors, other owners.

[00:36:46] It's, it's, you've got to find some people, some fellow owners or advisors that, that you can share your, your issues with.

[00:36:56] And, um, and that's the, I guess when we talk about it, it, it is very lonely.

[00:37:02] It certainly is running a business.

[00:37:03] So, you know, the above all, um, we're talking about what you should do, but it's, it's all underpinned by having honest discussions with a few people that you trust.

[00:37:13] Yeah.

[00:37:14] They're vital.

[00:37:14] How do you handle this as, uh, as Claude?

[00:37:18] You know, you must, it must take its toll and you, you, you, you referred to that then.

[00:37:23] Yeah.

[00:37:23] It must take its toll, but also perhaps, um, steal you to, to, to help more owners in your business.

[00:37:31] Yeah.

[00:37:32] As I said, I, um, being a evolution and a growth and a reframing of the problem, um, yeah,

[00:37:41] we take it as an opportunity to help that business owner through this challenging time,

[00:37:48] aim to, um, show a bit of, um, there is light at the end of the tunnel, not to diminish the problem.

[00:37:55] It is a big problem.

[00:37:56] And some business owners have put their whole life into, to their business.

[00:38:00] So yeah, it's like I said, we're collaborative.

[00:38:03] Um, you know, liquidators can be seen as, you know, the big bad wolf, uh, there to take your business.

[00:38:08] And, but yeah, we, we, we aim to be very collaborative in our approach.

[00:38:12] And it's also the evolution of the industry.

[00:38:15] Uh, I look back when I first started, it was very aggressive, um, approach to, to insolvency.

[00:38:23] It's evolution of, I think, um, business world and society.

[00:38:27] You got to be more collaborative in your approach.

[00:38:30] Um, there is, like I said, a lot of resources in regards to that, that mental health challenge

[00:38:35] that we all go through when there's financial issues.

[00:38:38] Um, and to realize you're not alone and you can reach out to people.

[00:38:41] Mm-hmm.

[00:38:41] You know, not to be, you know, shame is the biggest killer sometimes with, with people.

[00:38:45] They're kind of shameful of going through that situation.

[00:38:49] Yeah.

[00:38:49] And you see that as the biggest, one of the biggest challenges is that, and I, I think Olga

[00:38:55] said the same thing.

[00:38:56] It's pretty hard to admit you might've taken your eyes off, off the business or focused on

[00:39:04] the wrong areas and because it takes so much to build a business.

[00:39:10] Um, a lot of pride, a lot of, you know, ego and self-confidence and to say, um, you know,

[00:39:17] I got this one wrong.

[00:39:18] It's hard.

[00:39:19] When it, when you're at, there are probably opportunities all along the, the journey of,

[00:39:24] uh, starting and building a business to, to reflect and be a bit more even handed about,

[00:39:31] about your own performance.

[00:39:33] But when, when you're, um, without the dramatic consequences, but when it's, when you're facing

[00:39:39] down insolvency, however, however you can do it, you've to, to just admit that that's a

[00:39:47] major challenge and you, you, it is, we don't have time.

[00:39:51] We've got 20 working days or 21 days for a DPN.

[00:39:55] I mean, it's, it's kind of now or never.

[00:39:58] It is.

[00:39:59] It is now or never.

[00:40:01] Um, going back to, um, yeah, it is a reframing and hopefully they don't let them be defined

[00:40:09] by this moment.

[00:40:10] Um, there are, you know, there are other things in life.

[00:40:14] You know, you got a, you got a son, you got a daughter, you got a brother, you got a sister.

[00:40:18] Um, there are other things in life as well.

[00:40:20] Try to, um, um, advise them that not to be defined by this point in time.

[00:40:27] Yeah.

[00:40:28] And there is, there is light in the tunnel or they might feel hard in the moment.

[00:40:33] Um, and you have people reaching back to us, you know, six, 12 months later, being grateful

[00:40:39] after the fact sometimes because when they're going through that, it's really, really challenging

[00:40:43] and, um, they lose sight of what's important in life sometimes.

[00:40:47] Um, and then six, 12 months later, they've come out the other end, um, and realize although

[00:40:54] it's not the greatest thing to go through, it's not, not the end of the world.

[00:40:57] And there are other important aspects of life to, to focus on.

[00:41:01] And sometimes it's a, it's a learning curve.

[00:41:03] It's, it kind of pushes it, pushes you towards the right path sometimes.

[00:41:07] Um, be philosophical about it perhaps as well.

[00:41:11] Um, so it is, it is a challenge, Michael.

[00:41:14] Definitely it's the most challenging, but sometimes the most rewarding because, um, you, you're

[00:41:18] aiming to help someone through that process given the, the challenging circumstances.

[00:41:24] Uh, we're managing different stakeholders.

[00:41:26] You know, you've got the creditors, of course.

[00:41:29] They're, they're a little bit annoyed because they haven't been paid.

[00:41:31] So you've got to manage that.

[00:41:33] You've got to manage the, the employees, um, the, the business owners, uh, the regulators.

[00:41:39] So it is a challenging aspect of it.

[00:41:41] I think that's an understatement, Claude.

[00:41:45] When you, when you think about all of those, um, stakeholders, employees in a business that's

[00:41:51] under, you've seen many owners that are very attached and defined by their business, but

[00:41:57] also not always, but often, um, pretty attached to the employees as well and feel like the

[00:42:03] weight of the world is on them because they're in this situation.

[00:42:08] And it's, uh, yeah, I could see why for you.

[00:42:11] And then it's a, it's a pretty incendiary environment where you've got emotion and, um,

[00:42:17] and stress and, and, uh, against the backdrop of a pretty short timeframe.

[00:42:23] So wowza.

[00:42:23] Well, thank you, Mark.

[00:42:24] We, we, we, we aim to be as empathetic as possible during those challenging times.

[00:42:28] So you've got to, you've got to approach it with a empathetic, uh, touch, um, in those

[00:42:34] challenging times.

[00:42:35] Cause you, you do get the best out of people.

[00:42:37] It sounds, yeah, like, it sounds like you, you know, you've got to play the role of professional

[00:42:42] objective, but also pointing an owner towards there are other things in life and you're not

[00:42:48] defined by that's a, you know, it's a, it's a tricky, but incredibly important

[00:42:53] conversation.

[00:42:54] It is, it is important.

[00:42:56] It is.

[00:42:57] So, um, yeah, it's like, it's, it is the most challenging, but also it could be the most

[00:43:00] rewarding time to time in those circumstances.

[00:43:03] So yeah, you've had, you've had, uh, had your fair share of, um, successes where people

[00:43:09] come back and say to you six, 12 months later, you know, I'm back on track and, uh, you

[00:43:15] know, maybe I didn't, I didn't like your advice, but I, I took it.

[00:43:19] Then it's not an hour of liking the advice, but you know, it might've been hard to cop

[00:43:23] at the time, but it's very satisfying for you to, to hear that, that business and that

[00:43:30] owner is back on track.

[00:43:32] Uh, definitely.

[00:43:32] Sometimes in life we have to take that bitter pill.

[00:43:35] We all do.

[00:43:36] Um, and we're better for the experience.

[00:43:38] So generally speaking, when we do get a compromise of debt and generally the tax debt, uh, we've

[00:43:45] getting some really good compromises of that particular tax burden, which weighs down a

[00:43:50] business.

[00:43:50] They're very grateful, definitely very grateful, uh, in that regard.

[00:43:54] So that's, that's the, um, that is the, the, you know, the dynamic change from traditionally,

[00:44:00] you know, your bread and butter liquidation exit.

[00:44:03] It's a full stop, uh, towards the, the small business restructuring or the informal restructuring

[00:44:09] where we're compromising some significant debt loads.

[00:44:13] And it gives the, the business owner a reset moment, um, a bit lighter in regards to not

[00:44:20] having that burden on their shoulders.

[00:44:23] Yeah.

[00:44:23] Having, you know, uh, the tax office constantly reaching out.

[00:44:28] Yeah.

[00:44:28] Like the, like the, it's not going to go away.

[00:44:30] The stress is enormous.

[00:44:32] So to however you can restructure it.

[00:44:34] And if it is 10, 20, 30 cents in the dollar, whatever it might be, it's, uh, you know, it's

[00:44:40] going to be really incredibly difficult to go through, but if, if you did adopt a head

[00:44:45] in the sand approach, the, and it, and you completely lose control, then you're entirely,

[00:44:54] your business is, is gone and, but the debt will still be there.

[00:45:00] And, and it's not like you can, um, avoid that either at a personal level.

[00:45:06] Uh, yeah, spot on, especially if you're at risk of receiving a direct, the,

[00:45:10] who do any notice from the tax office, what generally happens, they migrate that debt,

[00:45:16] which is sitting on the company or business tax portal.

[00:45:22] They migrate that to the director's personal tax portal, which is significant.

[00:45:28] Yeah.

[00:45:28] And so it is, um, yeah, being proactive and taking a bit more control of the situation

[00:45:32] when you see those, um, you know, those red flags from the tax office and you, you,

[00:45:37] business owners will know that, you know, they're getting calls from the tax office.

[00:45:40] Um, email, et cetera, correspondence increasing.

[00:45:44] Yeah.

[00:45:44] Um, so that's definitely, um, um, yeah, a tip to, to be conscious of that,

[00:45:49] especially in this current dynamic with the, the ATO being a bit more aggressive,

[00:45:52] uh, in their recovery stance compared to, you know, two, three, four years ago.

[00:45:58] Yeah.

[00:45:58] Yeah.

[00:45:59] Yeah.

[00:45:59] Look, it's an, it's a, it's an exit that we don't want any owner to, to go through.

[00:46:04] And, and, um, we're not, neither of us, your, it's your bread and butter and, and there's

[00:46:10] no, there's no guarantees on anything that the potential outcome, but putting your head

[00:46:15] in the sand, which we've said a few times is, is not the way.

[00:46:19] Claude, that's been a, a really, it's a really personal insight to, empathetic insight to the

[00:46:26] insolvency because I don't know if, if many people have, um, you know, really been close

[00:46:30] to an insolvency and, you know, I've, I've worked with owners that are getting to that

[00:46:35] point and, and it's, you know, it's, it takes us toll on, on them, their family, their staff,

[00:46:41] on the advisors, if that, you know, there are, you know, the advisors still got to be objective,

[00:46:45] but it's hard to, to watch.

[00:46:47] And if you were to just summarize for somebody who is challenged with ATO debt or with other

[00:46:59] financing that they just not, they're not on top of what, what are the couple of things

[00:47:03] that you think they must do to avoid having to call you ultimately?

[00:47:07] No, no, absolutely.

[00:47:09] No, we are kind of the second or last resort.

[00:47:12] Um, it goes back to what we touched on, uh, previously, uh, Michael, first and foremost,

[00:47:19] get a really good read of the numbers.

[00:47:21] So, you know, invest in a good cloud accounting package as a business owner, perhaps educate

[00:47:27] yourself.

[00:47:28] Um, again, it goes back to resources where we've got resources at our fingertip.

[00:47:33] I'll pick up my phone now and do a Google search.

[00:47:36] And I've recently got onto the Microsoft copilot.

[00:47:39] It's transformational.

[00:47:40] You have to go and read, you know, 20 textbooks to get an understanding of one concept.

[00:47:44] Um, so getting a really good understanding of, you know, cloud accounting and then educating

[00:47:50] yourself on, as I said, accounting is the business of language.

[00:47:54] Um, you know, that's one, two.

[00:47:56] And then third, once you've got that understanding, if you say numbers,

[00:48:02] deterrate, act early, be proactive, speak to people.

[00:48:06] Um, you can call your accountant, um, your lawyer, your other business owners.

[00:48:12] Your business coach, your business coach.

[00:48:14] Um, yeah, you can, you can Google certain things.

[00:48:18] You can, there's so many resources out there.

[00:48:20] and then put in a plan in place probably two or three key things you have to work on and have a

[00:48:25] really good discipline focus around that whether it's definitely weekly is better than monthly

[00:48:30] um i have a weekly routine that i just sit down and go for the numbers and my hit list what are

[00:48:36] two three things that i need to do to make sure the business is tracking well and um i think that

[00:48:40] the key insights you know that's wise men say it's simple but not easy sometimes it's simple but not

[00:48:45] easy basics fundamentals and a discipline routine around that and take care of yourself you know

[00:48:51] mind body spirit just really take care of yourself healthy and then you'll you'll definitely your

[00:48:56] business will you'll be better as well you'll feel better the business will feel better and just kind

[00:49:00] of um a virtuous cycle and i think understanding the ego thing or the shame thing that all these

[00:49:07] personal strong feelings um somehow to find it in you to to chat to others as you said and and a range of

[00:49:15] other people and share the load so claude where where does um anybody that wanted to reach out

[00:49:21] and have a chat to you there um how could they get a hold of you and yeah just go to our website

[00:49:26] www.charles and co so charles a-n-d-c-o dot com dot au um you'll see about us i'm on there it's a

[00:49:36] profile there's our email address and phone numbers some of the services we provide so have a look at that

[00:49:42] that'll give you some insights into what we do and what we may help you um and realize that you're not

[00:49:48] alone a lot of other people are going through the same the same issues yeah um and i endorse that and

[00:49:52] if it if not you get your get your accountant or whoever to to make the call because you if you know

[00:49:58] you've got this overhanging debt issue do something about it claude thank you very much for your time

[00:50:07] and really appreciate you um putting yourself into the uh the seat of a of a business owner giving

[00:50:14] that perspective as well so much much appreciate you take care of yourself thank you for the great

[00:50:20] questions michael and um congratulations well done for giving back to the small business community

[00:50:30] well i hope you enjoyed that episode of small business banter and i i hope it was helpful in you

[00:50:35] getting the most out of your small business ownership to subscribe or listen back or to check

[00:50:41] out any of the resources or information we talked about today head over to the website smallbusinessbanter.com

[00:50:48] dot au or if you want search up small business banter on your favorite podcast player don't forget to

[00:50:55] subscribe and if it was really helpful i'd love it if you told another business owner about the podcast

[00:51:01] if you thought it was exceptionally helpful then how about you leave me a five star rating

[00:51:06] if you think i can help personally please reach out to me michael kerr via the website

[00:51:12] there's a new episode out every couple of weeks we'll catch up then