Warning signs that your company/business is distressed

Author: Keith Steven

Bank –

  • 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 has refused to provide an Enterprise Financial Guarantee loan
  • Your bank has asked for facilities to be reduced.
  • Your bank wants to introduce investigating accountants
  • Your bank asks for increased security.
  • Your bank wants personal guarantees.
  • Your bank wants to increase personal guarantees.
  • Your bank wants security against your own personal property.

Reporting – warning signs

  • You have not filed the company’s accounts on time and have incurred a penalty.
  • You have not filed the company’s annual return

 

Creditors – warning signs

  • Cash flow always tight so paying creditors is difficult.
  • Inefficient production – cant get stock because you cant pay creditors on time.
  • You can’t get stock on time because you miss deadlines for payment of supplier accounts.
  • You cannot get new credit.
  • You cannot extend existing credit.
  • The company’s creditor days growing – i.e. divide the amount of money you owe creditors by the sales per annum and multiply by 365.
  • You don’t meet agreed payment terms.
  • You have lots of failed deals with
  • You have lots of red warning letters.
  • You have had lots of legal actions.
  • You are “Peter & Pauling” using lots of suppliers and spreading credit around.
  • You are always fighting creditor fires and having to handle creditors calls every day.
  • Your suppliers can obtain trade insurance against your company.
  • You have had visits by Sheriffs or
  • You are having HMRC payment problems

 

Debtors .

  • They just don’t pay on time.
  • You don’t know what your total debtors are.
  • Debtor days are over 85 days: divide the amount of money you are owed by debtors by the sales per anum multiplied by 365.
  • Your company has concentration in 1 or 2 major customers (debtors).
  • Your accounts department only invoices periodically. You do not have a dedicated debtor collection function.
  • You don’t want to issue too many credit notes – although you know the goods supplied have been faulty, returned or under agreed quality.

 

Factoring Companies

  • I don’t know how much they owe me.
  • I don’t know how much the company owes the factor.
  • Your factoring company is reducing your advance.
  • They don’t seem to understand my business.
  • We can never get enough advance against my invoices.
  • They are advancing 75% against my invoices but disallowing lots of invoices.
  • They are too expensive.
  • They claw money back from me after the debtor has not paid in less than 90 days.

 

Management Warning Signs

  • Autocratic leadership is it one person running the show?
  • The management team cant perform because of:
    • Firefighting – you never get your work done;
    • Lack of information or wrong information;
    • Concentrating on non essential issue;
    • Senior people seem paralysed into inaction.
    • Are you “compartmentalising” problems. in other words do you deal with one creditor problem and ignore others.
  • Do you blame the:
      • Bank;
      • Creditors;
      • Debtors;
      • Accountants;
      • Advisors;
      • Everyone!!
    • You don’t have a business plan.
    • You don’t have regular management meetings.
    • You don’t have board meetings.
    • You don’t like changes.
    • Directors are taking big salaries and expenses.
    • You ignore advice of others and professionals.
    • You have an overdrawn directors current account

 

You and the management don’t know

  • Gross Profit – accurately.
  • Costs – accurately.
  • Sales per month / per annum.
  • Orders taken.
  • Enquiries quoted for.
  • Bank balances.
  • Where 80% of work comes from.
  • Where 80% of profit comes from.
  • What your accounts say they are “wrong” usually.
  • Your market what are your competitors, products and threats?
  • The Key Statistics of the business:
    • How many units of your product you make per day?
    • At what cost?
    • How many units you need to make to break even?
    • How many enquiries do you need?
    • How many enquiries do you convert into sales?
    • How many people it takes to make this product?
    • What is your sales performance compared to last year, last month, budget?
    • What are your costs increases/decreases year on year?
    • How many new customers you have gained this year?
    • How many customers you have lost this year?
    • And why?

 

PAYE (HMRC)

  • You are not paying deductions on 19th of the month following.
  • You have not filed monthly returns or paid the tax deducted.
  • You have had penalties.
  • You have entered into deals with the Revenue.
  • You have not managed to keep up with these deals.
  • You are well behind with tax paperwork this is a failure to maintain a PAYE Scheme.
  • Taxes and other social security entry on audited accounts seems high.
  • Tax Collector pressing.
  • Debt recovery unit dealing with account.
  • I’m not that bothered about IR!!

 

VAT (HMRC)

  • Not filing returns or paying tax on time.
  • Had vat surcharges.
  • Doing deals over time with the local VAT office.
  • Cannot keep up with deals.
  • Cash flow says you can repay far more than profits made.
  • Debt recovery unit pressing.
  • I’m not that bothered about the VAT!!

These HMRC warning signs are based upon their minimum compliance expectations: if you breach these then they will see the business as insolvent!

 

Other Warning Signs

Yourself

  • You feel that you are the only person who can make a decision in the business.
  • You cannot stand going into work on a Monday.
  • You breathe a sigh of relief when Friday night comes.
  • You don’t open your post.
  • You don’t take calls from irate creditors.
  • You dread the bank calling.
  • You cannot sleep.
  • You are falling out with those around you: at home; at work.
  • You are very lonely at work.

 


Systems Warnings Signs

  • You don’t produce monthly management accounts.
  • Sage or similar computerized accounts package shows negative balances in liabilities.
  • You have a computer generated profit and loss but a handwritten balance sheet.
  • GP constantly overstated – you just do not understand why no profits are made from such good gross margins.
  • Wastage understated.
  • Constant returns, faults disputes with debtors.
  • Things always going wrong.
  • You ignore the information the systems produce as “it must be wrong” !

 

People

  • High staff and management turnover.
  • Internal political issues causing difficulties.
  • Things always going wrong.
  • Your team always seems demoralized.

 

Finance

  • Always refinancing assets. No money to pay deposits.
  • Just need x,000 to sort this problem.
  • The next big sale/contract/debtor payment will sort the problem out!
  • You have introduced a number of new financial products to keep going.
  • You have borrowed money against your home to fund the business.
  • You are not taking money out of the business to live.
  • You have used your own money to pay wages pay bills and are just waiting for the next big sales to pay it back.

 

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