Warning Signs

Companies suffering financial distress have identifiable characteristics. It’s fair to suggest that all businesses will exhibit some, or even many, of these characteristics from time to time. We suggest you print off the lists below and tick those that apply to you and your company. If you’ve just got a few ticks you are probably OK, but more than that and you need to be concerned.

If you can identify with many if the warning Signs why not CALL US NOW for CONFIDENTIAL FREE ADVICE from one of our Experts.

If you have reviewed the list and decided you are a director of a company in financial distress you need to go the next step and review our page Is my company insolvent? There is a significant legal difference between a company in financial distress and company that can be defined as “insolvent” – see our page on Insolvent Trading.

Director’s behaviour – Warning Signs

  • Fire fighting – you don’t get the important work done because you are dealing with problems.
  • You receive a lack of management information or wrong information.
  • “Compartmentalising” problems – you deal with one creditor problem and ignore others?
  • You don’t have a business plan.
  • You don’t have regular team, management and board meetings.
  • You believe that one more sale, one more contract, one big customer payment will solve the cashflow problem.
  • You have a large director’s loan account.

Bank – Warning Signs

  • Your overdraft is always at the limit.
  • Your bank always wants more information.
  • Your bank has returned cheques.
  • Your bank has refused to increase your overdraft.
  • Your bank refuses to provide a Loan.
  • Your bank wants to introduce investigating accountants.
  • Your bank asks for increased security.

Creditors – Warning Signs

  • Cash flow is always tight so paying creditors is difficult.
  • You can’t get stock because you can’t pay creditors on time.
  • You cannot get new credit.
  • The company’s “creditor days” are growing.
  • You have lots of failed deals with creditors.
  • You have lots of red warning letters.
  • You have had lots of legal actions.
  • You are always fighting creditor fires and have to handle creditor’s calls every day.

Debtors – Warning Signs

  • Debtors just don’t pay on time.
  • You don’t know what your total debtors are.
  • “Debtor days” are over 85 days.
  • Your company has a concentration in one or two major customers.
  • You do not have a dedicated debtor collection function.

Management – Warning Signs

You and management don’t know key statistics of the business such as:

  • Gross Profit.
  • Costs.
  • Sales per month / per annum.
  • Where 80% of work comes from.
  • Where 80% of profit comes from.
  • How many units of your product you make per day.
  • How many enquiries you convert into sales.
  • Your sales performance compared to last year, last month and budget.

Systems – Warnings Signs

  • You don’t produce monthly management accounts.
  • “MYOB” or a similar computerised accounts package shows negative balances in liabilities.
  • You have a computer generated profit and loss but a handwritten balance sheet.
  • Constant returns, faults and disputes with debtors.
  • Things always going wrong.

People – Warning Signs

  • High staff and management turnover.
  • Internal political issues causing difficulties.
  • Your team always seems demoralised.

So if you ticked a lot of these Warning Signs you should go the next step and check our page Is my company insolvent?

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