You can get a better understanding of your business viability by entering three years’ worth of financial information into the tool. One year provides you with results at a specific point in time, whereas three years allows you to identify any trends or anomalies that can be addressed.
Whether your business is surviving, thriving, or just getting off the ground, it is important to know if your business is viable.
What does it mean to be a viable business?
Viability refers to something working successfully over a sustained period of time. Ensuring your business can survive and overcome obstacles that may arise is an important part of running a business.
There are two situations where a business is deemed viable:
The first, is if you are making a profit from your day to day business operations and you are also able to meet your commitments to your business creditors.
The second, is when you have sufficient funds to sustain your business during a period where the business is not turning a profit.
Good record keeping, cash flow management and continually updating your business plan ensures you have the best possible chance of success and turning a profit. To help, the Australian Taxation Office (ATO) has developed a Business viability assessment tool that lets you self-assess your business’ viability.
What is the business viability assessment tool?
The online business viability assessment tool gives you a greater understanding of whether you will be able to pay your debts and continue to meet any ongoing commitments in your business.
The tool factors in information such as gross margin, cash flow, assets and liabilities, liquidity, debtor and creditor position and availability of funding, to provide a report. The report will give you an overview of how viable your business is. Any information you put into the tool cannot be accessed by the ATO and all information is wiped from the system when you exit the tool.
Tip
In some instances, the ATO might reach out to you and work with you to determine your business’ viability if you have not made a payment as part of your payment plan or you are in negotiation about paying off a debt. This is not a bad thing, but rather the ATO trying to assist you in recognising the areas of your business that need some adjustments or improvements.
Understanding the results to improve financial performance
Once you have completed the business viability assessment tool you will get a summary financial report that provides an overview of your business’ current situation. If there are mostly green ticks on the report, then it is likely that your business is trading viably. If you have received some red crosses, it is possible that your business is not trading viably and you will need to look more comprehensively at your business finances to determine what isn’t working and what needs to change.
Some warning signs to look out for include:
- sales dropping dramatically over the last three years
- liabilities remaining greater than your assets
- outstanding invoices for over 90 days
- overdue payments to suppliers
- not keeping good financial records or an updated business plan.
How to handle a negative summary financial report
A bookkeeper or accountant can provide you with some professional advice if you are concerned about your results.
If this isn’t an option for you due to limited available funds, we encourage you to speak with one of our business advisers, free of charge, to assist you with next steps, or seek assistance from a small business financial counsellor.
Seeking professional advice before making any potentially costly decisions should be done as quickly as possible. This way they can work with you to develop a plan of action, including considerations for improvement.
It can be difficult to hear that your business isn’t doing well, or is deemed not viable, but it is also important to listen to the advice given to you rather than sink more funds into the business. If you are advised to close or sell the business, then doing this as quickly as possible allows you to recoup as much money as possible and address issues before they become unmanageable.
More information
- Attend our Understanding Business Financials or How to Write a Business Plan workshop to help your business stay on track financially.
- Learn about record keeping for your business to keep track of its financial health.
- Use our breakeven analysis calculator or cash flow forecast calculator tools.
- Check out the finance section of our website for information to help you manage your business finances.
- Read the ATO’s information about the business viability assessment tool and access the tool here.
