News

Don’t ignore the warning signs that you or a customer’s business is in trouble
21 April 2022

You have worked long and hard to get your business up and running and have put your heart and soul into making it successful.

The thought of losing it can be incredibly stressful, both for you and any employees who could lose their jobs.

Equally, if you have a customer who owes you money, you may want to take more immediate action if it looks like they may be in distress.

So, how do you avoid getting into difficulties and spot the signs of business failure? And begin firefighting potential problems?

The warning signs that a firm is struggling include:

Problems with cash flow

They say that money isn’t everything, but poor cash flow is a problem in business and is often a clear indication that the business is in trouble.

Cash flow issues can be identified with proper forecasting, which will identify the cash shortage problem areas or overspending.

Excessive debts

Interest rates are creeping up again after more than a decade of historically low rates and having too much debt within a company may place it at risk.

If you are seeking out additional funding and lenders are seeking stronger personal guarantees or security against any money they lend this could be an indication that your own business is in trouble.

It can be more challenging to spot debt issues in another business, but regular late payments from a customer can be an indication that they are struggling to manage their own money.

Defaulting on bills

We have all heard the phrase, “you will be paid by the end of the month,” often used to overcome short term shortages.

If this becomes a regular occurrence, it could suggest a business can’t pay its way.

When it comes to your own finances, defaults on tax payments to HMRC or other formal payment arrangements can be particularly damaging and lead to penalties.

It can also be bad for your reputation and that of your business if it becomes clear that you are struggling to make payments on time.

Chasing payments

A lot of businesses are reluctant to chase payment because they do not want to damage their relationship with customers or reduce the prospect of future work.

However, regularly allowing late payments can affect your own finances and prevent your own suppliers from being paid.

If you are dealing with late payment issues you should seek professional advice to improve your credit control processes and, if necessary, eliminate late-paying customers from your business.

If you are unable to effectively chase payment it may cause future cash flow problems.

Either way, sudden changes in these numbers should be investigated to see whether they are signs of something more serious.

Falling margins

High sales are great, but profit is the key to survival and growth.

Falling margins suggest that costs are too high, and prices or income are too low. This is not a sustainable position for any company.

Indications that this may be happening within a customer’s business are changes within its own operations, such as the cutting of service or product lines, redundancies or an overall poorer quality of goods or services.

Low morale

Reduced hours, contractual changes and pay freezes can all be signs of trouble within a business.

All of these indications may not necessarily mean the end, but they are a clear indication of money troubles.

With employment costs rising suddenly this month, you may start to notice this within more businesses that you deal with.

If you are concerned about your own financial health or that of a customer, you should seek professional advice as soon as you can.