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Business insolvency – recognising the warning signs

How to self-diagnose the state of your business, the danger signs to look out for and what to do next.

As a business owner, can you afford to pay when you should pay? Have you got the wealth to make the payment?

If you can’t answer yes, time is critical.

You should:

  • Speak to your advisers. Your accountant, solicitor and bank manager will be able to offer advice and support.
  • Re-organise – What are you doing? Why are you doing it? Is there a better way?
  • Rationalise – Review costs. Look for hidden costs.
  • Restructure – This will be essential to the survival of the business. Set the goals and act swiftly to create a lean and agile business.

The age-old adage of “Cash is King” once again holds true. It doesn’t matter how profitable a business is; if it runs out of cash, it is the end of the business.

Monitoring cashflow and creating budgets are both very important for business survival. Monitoring cashflow allows a business to see its liquidity and how much cash it needs for a specific period. Budgeting gives insights into margins, profitability, overheads and expenditure. By doing both, it presents a clearer picture of how a business may need to restructure and adapt to run more efficiently.

Cashflow impacting items include VAT, personal tax, Time to Pay arrangements, and CBILS or bounce back loans. It is important to understand their impact on cashflow and manage repayments of deferred tax and borrowed money.

Warning signals to recognise are unpaid debtors increasing, resulting in a slowdown of inflow of cash on sales and suppliers wanting shorter periods of credit. It’s important to maintain control so creditor days are longer than debtor days otherwise a business will be using up working capital and may need to reassess other payments.

To discuss any corporate recovery, insolvency or restructuring issues you may have, please contact Jeremy Oddie or Julie Webster below.

Written 30 November 2021.

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