All businesses have times during which receipts of income slow down, suppliers do not deliver, and customers close or go to a competitor. While it is a necessary business skill to be able to take the rough with the smooth and concentrate on how to counteract unforeseen events, would you be able to spot the signs that your business is in financial trouble?
According to Saverio Salandra, Corporate and Commercial Partner at Thackray Williams, ‘When you supply services or goods, you are in effect handing over cash to your debtors. It is not enough to work hard and expect the money to follow - you need to treat the collection of debts as a priority and manage cash flow with the care that it deserves to avoid getting into trouble.’
Whether your business is in trouble or not, it is always necessary to be on top of your financial management and have an in-depth knowledge of the books. Some of the warning signs to look out for are as follows:
Is your business bank account always hovering around its overdraft limit?
Has your relationship with your bank changed? Are they asking for more information, refusing to increase lending, asking for your facility to be reduced, or seeking increased security against borrowing?
Have your lenders sought personal guarantees for the first time, or are they asking for lending to be secured against your personal assets?
Any of these signs could mean that your credit rating could be at risk, which could also put off potential customers and suppliers from doing business with you.
Maintaining a healthy cash flow can feel like a continuous battle, but it is one that you need to win to stay afloat. If you are always low on stock because you cannot get enough cash back to replenish your stock levels, are you missing deadlines for payments and are constantly worried about how to pay bills? You will need to spend time and effort working out ways to improve cash flow before the situation becomes critical.
What to do if you recognise a potential problem?
There are many things that you can do to help yourself if you recognise some of these warning signs.
One common way is to trade out of insolvency. You will need to be honest with yourself about the state of the business, and with your employees, customers and creditors.
Will money solve all your business problems? You must revisit your credit policy, the way that you issue invoices and how you deal with late debts. Make sure that you are fully acquainted with how much you are owed and the length of time that it has been outstanding.
Your business plan may need revising and updating. In order to maximize your ability to reduce your overheads it is well worth seeking legal advice on your company’s overall legal health and the commercial options that are open to you. Our corporate and commercial team has extensive experience in helping companies through hard times.
Are your contracts fit for purpose? Are your business terms as advantageous as possible? Do they need updating to ensure that in the future your business is better protected against bad debt? If old debts are a problem, then our debt recovery department can help.
If your business needs an injection of cash, you may consider restructuring, refinancing or selling some assets. We can advise you and assist with the practicalities.
Cut costs wherever you can, but be mindful that you must still deliver a product or service that the market can sustain.
It is also really important to look at your team. If your business is over-reliant on one person, or your staff are always reacting to a crisis rather than moving forwards, then you need to make some changes. You will need to have regular meetings with your management in order to keep the focus on getting back on track. Might it be time to reduce the amount you spend on staff and effect redundancies? Our employment team can advise on any implications relating to employees.
If you are having trouble identifying whether to trade out or are considering what the best option is to ensure the future for your business, it is time to seek advice. For a confidential, judgement-free discussion about how we can help your business contact us without delay.