Warning Signs

What are the warning signs for your business when things are not going well?

There are some clear alarm bells which ring when you need help and there are warnings that often creep up rather than storm up in a single issue but over time they lead to some difficult decision making.  The warning signs regularly accumulate in a financially poisonous cocktail and it is important that directors and company accountants are prepared to recognise them.

So what kind of tell-tale signs should you be watching out for?

Warning signs # 1: Creditor Action

Many companies and businesses occasionally miss payments; however, if this begins to occur frequently, it suggests that a business cannot meet its liabilities as and when they fall due.

When arrears of PAYE, NI and VAT begin to accrue this is especially the case. HMRC are never pleased about being used as unofficial bankers and failing to pay tax when it’s due.  Failure to pay such debts is the number one reason why Directors may find themselves at risk of disqualification or worse responsible for the company’s debts when the business goes into insolvency.

Directors are expected to know that continuing to trade with the knowledge of insolvency can have ramifications for them personally and it is important that they take professional advice from a licensed Insolvency Practitioner or to at least speak with their accountants.

Warning signs # 2: Cashflow

Most businesses suffer periodic peaks and troughs and in the troughs then cash becomes king. Naturally, if the business is continually spending more than it earns, it will lead to financial problems. Cashflow constraints are a symptom of underlying challenges. Directors very often when facing cashflow difficulties, either try to increase their overdraft facilities and/or introduce personal monies either from their own resources or family and friends. Whilst this may alleviate current cash flow difficulties, it doesn’t necessarily address the cause of the company’s cash flow issues.

Warning signs # 3: Falling Margins

We live in an extremely competitive environment and in most businesses profit margins are under more pressure than at any time in history.  No amount of turnover can compensate for a lack of profitability.  Sales are critically important but the old adage is true;- turnover is vanity, net profit is sanity.  If margins are being squeezed, it suggests that either the costs and expenditures are too high, the sale price of goods to the end user is too low or both. Directors need to understand their markets and margins and how to position their activities to protect the profit margin.  Narrow margins make a business vulnerable to the impact of small changes in other areas of its operations from sales levels, the cost of raw materials, interest rates and even the impact of staff absences.

Do not suffer in silence #seek help

Business is a challenging and dynamic business where without constant action success can be elusive if you see these warning signs in your business seek help!



Joan Houston is an experienced restructuring and insolvency practitioner in these areas.

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David Meeke

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