Warning signs that a business is in trouble

Last post: Mar 16, 2022

Spotting the early signs of a business getting in to trouble can often save a business, rather than leaving it too long, throwing too much money at it and it not working. Sadly we think that a few businesses will start to feel that pain and maybe try and ignore it, but getting to it early gives it a better chance of survival.

Why would a business get into difficulty?

• A supplier going into formal insolvency proceedings

• COVID has taken it's toll

• A key client goes into formal insolvency proceedings

• Fraud

• Poor management / or unmanaged poor management

• Overtrading

• Litigation

• The unexpected

Often we pick these things up when 'hard' warning signs start to appear. For example CCJ's, HMRC arrears, longer credit requirements, staff redundancies, not being able to get credit insurance to name just a few.

But there are 'soft' signs that we can look out for, and try and offer help when we see these.

• The increased dependence on ONE supplier or ONE debtor

• Delay in sending payments – 'cheques in the drawer'

• Lifestyle business and continuing to take large remuneration payments but trading declining

• Refinancing regularly or using expensive time critical finance

• Staff leaving (particularly the FD)

• Excessive optimism

• Avoiding calls that relate to money

If you see the warning signs as an advisor or mentor to a business, it is best to seek some good old-fashioned expert advice. In some cases a few minor tweaks will have things back on track, in others a more structured approach will be necessary. Either way protecting the Directors by doing the right things will be paramount.

We have a number of trusted turnaround specialists if you need an introduction.