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How do you spot the warning signs of a failing business?

There have been some very high profile business failures over the last 12 months, particularly in retail and hospitality, and all the signs are that the number will increase over the coming months.

Yet businesses rarely fail overnight.  In most businesses the signs are there to be seen long before it goes into liquidation.

It starts with underperformance, with turnover and profits stagnating and then declining.

That leads to cash flow difficulties, taking longer to pay suppliers and the quality of its service or product starts to slide.  Management seems to be spending more and more time firefighting.

Before long payments start bouncing, threatening letters, writs and summonses start arriving, and the directors are always struggling to find cash – perhaps not paying themselves.

And finally bailiffs turn up at the door, the bank won’t even pay the wages, a winding-up petition arrives and it’s time to bring down the curtain.

What can be done by the directors and managers?

So often directors and managers bury their heads in the sand, hoping that “something will turn up” to solve all their problems. If action is taken early enough, before a difficulty becomes a crisis, the business can be turned around and saved.

Firstly ask yourself some important questions….

  • Do you understand the financial side of the business?
  • Is it making a profit?
  • Do you know how much revenue you need to break even?
  • Do you have enough cash to see you through the next three or six months, or to survive any unexpected setbacks?

Secondly, do these questions sound familiar?

  • Are you under pressure from your suppliers, receiving harassing calls and letters and having to choose which creditors to pay and which to leave?
  • How up to date are you with your HMRC returns, and are there any arrears of PAYE, VAT or corporation tax?  ”HMRC rarely take prisoners and changes announced in the Chancellor’s last budget may well mean that they’ll be even quicker to take action in the future”
  • Is your bank overdraft constantly up against the limit?  Used properly, an overdraft is supposed to iron out fluctuations in cash flow, and so you’d expect to see the account alternate between being in credit and being overdrawn.

Is it time to act?

Graham Down, the Managing Director, of tri group, who specialise in helping financially distressed businesses, said: “Financial difficulties can creep up on the unaware, and the problems can escalate rapidly if they’re not addressed.  The earlier that the problems are identified, the more options that are available and greater the prospects of securing the future of the business”.

We are here to answer any question you have about your financial options, just contact our offices. We’re available Monday to Friday, from 09:30-17:00 to take your call in confidence.

contactus@trigroup.org

0330 1000 371