It’s easy to bury your head in the sand where finances are concerned, but with a business, recognising the warning signs of insolvency could mean the difference between sinking and swimming. The key to keeping your business solvent is to always be on the lookout for the clues of future trouble. As a quick test, think about your situation with your debtors, your creditors and your bank:
Late-paying debtors are one of the earliest signs of future issues, especially if you have a small number of customers who account for a large portion of your business. If you’re picking up the phone more frequently to chase invoices, NOW is the time to look at your management accounts and assess the knock-on effects of slow-paying debtors.
Are you late paying your suppliers and other creditors? Are you waiting for the final demands before paying, thinking it will ease your cash flow? As useful as this may be, this practice raises flags with creditors who may refuse to supply you on account, and become more aggressive with chasing payments. This is particularly bad news if your business requires stock from suppliers in order to trade.
Is your overdraft always at the limit? Maybe your bank has refused an overdraft extension or has given you notice of their intention to reduce your overdraft facility? These are signs that your bank has spotted potential problems and is reducing their risk.
If you think your business has some of these warning signs, get advice now. I am always happy to offer no-obligation advice to businesses of all sizes. Sometimes, an informal chat about your concerns and your options is all that’s needed to turn things around. At worst, you’ll have a little more information, and that’s never a bad thing.