Is your business really assetless?

Small-business owners should protect the personal investment they make in their company as a secured loan, registered on the PPSR. But, what will the security be registered against? What if there are no “hard” assets? Security over all of the assets, including “soft” assets, could be vital in allowing a business to survive and thrive in the face of financial distress.

1. Asset protection

The cost of setting up a small business can run into the hundreds of thousands of dollars. That money usually comes from the pocket of owners, or personal loans.

That investment can be protected as a loan from the owner to the company, with security over the company’s assets and registered on the PPSR. Please use this link to read about the PPSR.

An owner who has protected their investment as a registered secured loan is in a far greater position to save their business in the face of financial difficulty, or to recover some or all of their investment. This protection can mean the difference between being able to start again and losing everything. Please use this link to read more about the benefits of owners protecting their investment as a registered secured loan.

2. The company has no assets

The position that a small-business owner will be in a better position if they protect their investment as a registered secured loan has recently been endorsed in a report by the Australian Small Business & Family Enterprise Ombudsman. That is based on the assumption that the company has assets against which security can attach.

Many business owners are of the view that the company does not have any assets and so there is no reason to protect the investment as a registered secured loan. This is said on the basis that the premises that the business operates from is rented, any plant, equipment and vehicles are leased or heavily financed as is the office furniture, computers and printers.

This ignores the fact that if there is any money in the bank (even if inadequate to pay all the debts when due and payable) the security will attach to that money. But, it also fails to recognise the really important assets that a business has, even when it has no hard assets. These include the following assets:

· the business name and logo

· the ability to maintain the lease over premises

· the client data base

· software or other intellectual property developed in the business

· the licence to use any intellectual property or software in the business

· the domain name and the website

· social media assets (eg facebook, Linked In, Instagram etc)

· email addresses

· telephone numbers

3. Starting again

If a company is forced into external administration (please use this link to read more about the insolvency regime in Australia), the owner loses control of the business, including the “soft” assets referred to above. The external administrator may try to sell the business as a whole to another party, or any of the individual assets. This is particularly true with respect to software development.

It is very common for them to look to start a new business essentially in competition against a business that they have set up and worked at for many years, prior to sudden and often unexpected financial difficulty. If the owner uses the soft assets of the old business, legal action may be taken to restrain them and the new business from using the assets of the old company, our to account for the profits made as a result of their use.

An owner can start another company to run a similar business. However, in order to do so, they may be forced to find another couple of hundred thousand dollars setting up the new business. Much of that new cost will be putting into place the soft assets that the previous company had. But, also worth keeping in mind is the time that it will take to set up the soft assets again. This is particularly true with respect to the social media assets.

If, however, the owner has protected their investment in the business as a registered secured loan, they may be able to take possession of the soft assets to start a new business (albeit owned by a new company) for a substantially lower amount than starting from scratch and the associated time saving. That could be the difference of spending $15,000–20,000 as opposed to $250,000 to start again.

Go to www.krodok.com.au to learn more about putting this protection in place quickly, efficiently and inexpensively.