In today’s unpredictable economic environment, many companies are treading a fine line between profitability and failure. For some it can be hard to identify if they are simply experiencing a temporary cash flow shortage, a seasonal variation in sales or something more serious.
Generally, companies do not fail overnight, but some simply miss the warning signs. In this article we look at ten symptoms of a struggling business that shouldn’t be ignored. If you feel like your company may be in trouble, it is always advisable to seek advice as early as possible. The sooner you do so, the more options you will have.
1. You are always refinancing assets
Asset finance is a valuable resource for many businesses, but if you find yourself constantly refinancing this could be a sign of trouble. Refinancing over a long term means you’ll incur a much larger amount of interest, and the cost of repayments could begin to spiral.
2. HMRC debt recovery unit are dealing with your account
If your company owes money to HMRC, don’t put off dealing with it. Any correspondence should be acted upon as soon as it’s received. It is wise to take early advice from specialists, who can help in dealing and negotiating with HMRC.
3. You use lots of suppliers and spread credit around
Having multiple suppliers is common for businesses of all sizes and making good use of supplier credit terms can be vastly beneficial. However, as well as being an indicator of poor cash flow management, using too many increases the complexity of your supply chain and may reduce the quality of your product or service.
4. Debtor days are over 90 days
A high number of debtor days can have a big impact on your business, affecting how employees and bills are paid. The reasons for such a large number can be down to inefficiency in the company’s operations, or a warning sign that you have bad debts.
5. Your company has concentration in 1 or 2 major customers
If you have a high concentration of customers, the potential of losing one can have a devastating effect on revenue, profit and cash flow. Over-dependence on too few customers can also lower the value of your company to prospective buyers, lenders, or investors.
6. Cash flow is always tight so paying creditors is difficult
If you don’t have an eagle eye on expenditure and credit control, and haven’t accounted for unexpected costs arising, your business may run into problems. List your creditors in terms of priority and pay those who are most important to the continuation of your normal business operations first.
7. You have poor or non-existent management information
Directors of a company have an obligation to be aware of their company’s financial position at all times. It is important that efficient management information systems are put in place, whereby directors can find out on a daily basis where their company stands with regard to cash flow and solvency.
8. Not filing VAT returns or paying tax on time
If you are late paying VAT to HMRC, you will face a penalty or surcharge liability notice. It is important to seek advice early if you suspect that your company will be unable to pay VAT on time, as non-payment can send warning signals HMRC that you may be trading insolvently.
9. You have suffered significant bad debts
Bad debt emerges in several scenarios. It could result from lending money to an unsuitable customer, or it could be caused by a customer becoming insolvent or bankrupt. Bad debt can have a substantial effect on cash flow and having several large bad debts can put a business at risk.
10. You have suffered a CCJ or had bailiff visits
If your company has been subject to a County Court Judgment, it will affect the credit rating of your business. Suppliers may be reluctant to offer credit and lenders could be less inclined to grant borrowing, resulting in a rapid deterioration in the company’s financial situation.