Small business debt to the ATO now accounts for around 65 per cent of the more than $52 billion owed to the government. That’s a lot of SMEs mainly in the hospitality, construction and retail industries who have not paid their tax.

While the headlines are running strong against the Tax Office for taking an aggressive stance against these businesses, it is worth considering that badly run enterprises are often put into liquidation not by the ATO but by unpaid creditors.

In my view, this is a public service (albeit an expensive one).

In a post-Covid world, some directors still believe that a poorly performing business can use unpaid taxes, unpaid superannuation and unpaid supplier invoices to fund emergency cash flow to keep trading. This is a very damaging point of view.

Calling for reduced taxes and more subsidies will not help. Crying out that director compliance laws and regulations are too tough is also not the point.

Running a successful business is never easy and nobody said it was. However, when times are difficult those who have solid business plans, good structures, professional advisers and experienced management usually survive.

The government shouldn’t provide continued assistance to help struggling entities to limp on or provide a free ride with tax relief.

While many want the government to stand back and reduce red tape, they also seem to want handouts when things are not going to plan. However, you can’t have a thriving economy with the government expected to bail everyone out when times are difficult.

What is ironic is the emergence of the traditional conservative voter who on the one hand wants little to no government oversight or interference with their private operations, but on the other hand, publicly begs for greater tax relief and handouts from the government to “allow” their business operations to battle on with loud cries of a “cost of living crisis” – all of which is to be funded by the taxpayer.

The number of insolvencies after the GFC rose to similar levels as we are seeing now with less government assistance. There was little outcry.

The difference is that in recent times, there have been so many grants and assistance packages for SMEs in the wake of the pandemic that many owners now think this constant handholding should continue, or worse, that they are entitled to be propped up.

It may sound harsh, but some businesses must and will fail in tough times.

Extending the life of poorly run businesses is a significant risk.

It hurts subcontractors and suppliers who are left holding the pile of unpaid bills when directors suddenly put their enterprises into liquidation. Most of them don’t see it coming, as the moves can be swift with a business owner’s personal assets often protected.

I have seen suppliers left with hundreds of thousands of dollars of unpaid invoices. When I tell them it will cost thousands to try to recover funds and they may not even see a cent on the dollar of the money chased by a liquidator, they are devastated.

Make no mistake, sudden insolvencies cause a lot of pain for those down the line who are trying to keep their own enterprises afloat. And they have families too.

Carrying over debt is rarely a good position to be in. Just ask an accountant.

A responsible business owner makes the hard decisions early by seeking professional advice and trying to pay what is owing. What they do not do, is attempt to mitigate their loss by opening up multiple businesses in reliance on previous subsidies.

From a legal point of view, finally knowing when to call it quits and close in an orderly manner is also very important. It can save a lot of stress down the track for the owner, suppliers and employees.

With higher interest rates and consumers tightening their belts, keeping the lights on is indeed challenging. Get some early advice so you have time to turn around and pay debts or make arrangements to restructure – even face up to closing down.

We are back to real life now. We need to face the fact that the pandemic and related assistance is well and truly over.

No matter how many angry headlines hit the papers, propping up failing businesses is no longer good policy for either state or federal government.

Joshua Michaels is the Managing Director of NDA Law and a disputes & litigation specialist. He is also the husband of Andrea Michaels, the South Australian Minister for Small and Family Business, Consumer and Business Affairs, and Arts.