RED PILL VS BLUE PILL: WHICH ONE WILL YOU TAKE?
I've always been a fan of The Matrix movie franchise. Central to the franchise's theme is the analogy of choosing between the red pill and the blue pill. It represents making a choice between the willingness to learn a potentially unsettling or life-changing truth by taking the red pill or remaining in content ignorance with the blue pill. Applying this analogy to the context of the current post COVID-19 economic environment in all its iterations by state and territory, means that we're somewhat living in this dystopian theme where we're in a simulated reality (as The Matrix is) of trading challenges and deferred debt.
That simulated reality is changing:
- COVID is here to stay for the foreseeable future.
- Government COVID support has ended.
- The Australian Taxation Office (ATO) is starting to collect debt.
- Talk of interest rates increasing as early as August 2022.
- Landlords cannot continue to provide support—they have bills to pay as well.
- New challenges—supply chain, labour shortages, international war, and domestic natural disaster impacts. More challenges will emerge.
So, what is the red pill, blue pill in this context from an insolvency practitioner's perspective?
Blue pill—sit in ignorance—assume things will just get better and all will be ok. Debt continues to accrue and compound. However, we must be aware if we're actually in a state of ignorance or it's straight-out denial. As Morpheus from The Matrix said, "there's a difference between knowing the path and walking the path".
Red pill—be proactive and take action:
- Prepare new business plan in the current environment.
- Identify the challenges and outline how to adapt to those challenges.
- Run new cash-flow projections assuming the current environment is not going to change.
From the self-assessment process above, answer these:
- Are you solvent?
- Are you up to date on your tax debt and lodgements?
- Can you pay your ongoing tax obligations?
- Is your superannuation up to date?
- Can you pay your suppliers?
- Are you profitable?
If the answer to any of these is no, you must consider very seriously taking the red pill and explore the following:
- Negotiate affordable payment plans with creditors (including the ATO).
- Consider whether a sale of the business is possible.
- Look at refinancing options—only if you can service the new debt.
- Undertake a small business restructuring plan.
- Appoint a voluntary administrator/liquidator.
These are all services that Worrells provide. We can be your red pill. We will give you the right advice based upon your circumstances and then work with you to achieve the outcome. By taking the red pill now, you will make your business viable for the long term. This will give you a strong advantage over your competitors that choose to take the blue pill. Every day we meet/speak with people and businesses as complimentary to assess the position and empower informed and commercial decisions. Beyond the rational aspect from the taking the red pill are the emotional benefits that flow after we first talk with people.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.