THE $20 BILLION DOLLAR PROBLEM

Were you aware that Small Business owes 60% of the $20 billion currently owed to the Australian Tax Office?

Here is a scenario we’ve seen all too often; a small business wins a large contract worth perhaps several hundred thousand dollars. The figures have been worked many times and should all stages of the contract go to plan there should be a healthy profit for the business upon completion. The couple of stages proceed without any issues, however later down the track something happens. The head contractor has been progressively making slower progress payments – they have blown out to 60+ days. You have doubled your employee base for this contract, and doubled or even tripled your monthly commitments to the ATO with it. One morning you receive a phone call saying that the head contractor has been placed into administration by their bank – it will be very unlikely that you will receive any further payments from them.

Nine times out of ten, a situation like the above can easily destroy a very good (and profitable) business. Traditionally the only way out of these predicaments has been to trade out and enter into a payment arrangement with the ATO, or to refinance property or other personal assets and lend the money to the business.  Based on the tax payer’s circumstances these may not be viable options to continue trading. Some financiers have come to the realisation of how common it now is for a small business to encounter these problems, and have options to refinance the ATO debt on an unsecured basis. This will obviously result in a higher interest rate as there will be no security tied to the loan but it offers a solution to the issue, along with realistic repayment terms (the maximum term the ATO will allow is 24 months).

We have assisted many businesses work through in situations like this.  Sometimes the debts can arise due to debtors stretching payments out to 50 or 60 days, and the business makes creditor payments in 14-30 days – depending on who they are paying. Our aim is to nip the problem in the bud and work together to resolve it as quickly as possible.

Ross Stagno – Chartered Accountant

Manager – OPTIMA PARTNERS