The business survives only because you keep lending it money.

Personal savings have become the company’s monthly funding source

A director has transferred personal savings into a small engineering company every month since winter. Each transfer covers a different shortfall, so none appears large alone. The director’s savings are now nearly exhausted. The company’s forecast still shows another advance next month, although the director has not decided whether it can be provided.

Reconcile the advances

List amounts, dates, repayments and the accounts receiving the money. Check how each transfer is recorded and whether loan terms or security exist. Separate company reimbursements from actual lending.

Ask the accountant to reconcile the director’s loan account. A vague estimate of what the company owes the director makes both business decisions and personal budgeting less reliable.

Identify the reason support continues

Compare advances with operating results and working-capital changes. Determine whether they fund temporary collection delays, growth, losses or old liabilities. Look for a repeated cause rather than a sequence of unrelated emergencies.

Prepare a forecast with no further advance. The resulting gap shows the company’s dependence on the director and the operational changes required to reduce it.

Assess the director’s own capacity

Review personal commitments and the effect of losing the money. Obtain independent advice before offering a home or other assets as additional security. Do not let the company’s urgency erase the personal consequences.

State any future support accurately: committed, conditional or unavailable. The company should not incur obligations on the strength of a loan the director has not actually agreed to provide.

Set a decision point

Agree milestones for improvement, the maximum support available and the date for reassessing the plan. ASIC recommends prompt advice where due debts may be unpayable. Take the complete funding history to that discussion.

Avoid repaying yourself ahead of a review simply because you supplied the rescue money. Related-party transactions and the company’s wider creditor position require careful advice.

Source: ASIC — Insolvency for directors

Decide what support is available and what must change

Reconcile all advances and existing loan terms.

Forecast the company without further personal money.

Set a documented limit and obtain advice before adding security or taking repayment.

Call CRP today to coordinate an assessment of continuing director support and business viability.