Recognising business distress warnings

Any business can run into bad times at any moment, which is why it is imperative to recognise some of the early warning signs.

While unforeseen events can quickly see a firm requiring insolvency measures, other signs can be indicative of a company under pressure.

In such instances, quick action is needed as this usually provides an insolvency practitioner or restructuring expert with more options to remedy the situation.

Cash flow is a major issue for the vast majority of businesses that find themselves in difficulty, simply as they lack the finances to cover their liabilities at the point when they are due.

Financial management is therefore a vital aspect of tackling potential insolvency, while it should also highlight any questionable transactions or fraudulent activity – forensic accounting services are readily available if you suspect fraud to be an issue.

A company may also want to consider corporate advisory services in order to reach their full potential, to develop strategies for a more secure future, or even to help streamline existing operations.

Fundamentally though, keeping a watchful eye on all business incomings and outgoings should be seen as the first step to countering potential insolvency issues.

Late payments are a key part of this, as waiting on money that is owed by suppliers can make it exceptionally tough for any business to meet their own payment obligations.

A decline in sales volumes or orders can also act as an early warning sign of potential trouble on the horizon – are products still in demand or is the market shifting elsewhere?

For small businesses especially, another major factor to consider is the point when a major contract finished – if a firm is overly reliant on that customer and there is no alternative in the pipeline, a large chuck of income could suddenly disappear.

Fortunately there is time to address this issue by sourcing alternative contracts, or by renegotiating existing ones.

If this is not possible, an insolvency practitioner can advise on how to reduce outgoings in order to counter the loss.

By Phil Smith




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