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The path to a successful and profitable business is invariably littered with obstacles, the majority of which tend to be financial. There are common recurring pressures, however, that can be dealt with more effectively simply by being aware of them in advance.

A good example is how poor collection procedures and stock control compromises the company’s future. This can be redressed using technology that provides accurate information on current cash and inventory positions.

Knowing how the company is performing financially is an inherent part of a director’s duties. It allows informed decisions to be made quickly, and helps to stop what can be a fast decline into insolvency.

It is easy to assume that making substantial profits each month will keep the company going, because that is the ultimate aim of business. A problem arises, however, when a company does not have enough cash to pay its bills on time.

Late payers

Late payment is one of the major causes of business failure, but can be due as much to inefficiencies on the part of your own company as a deliberate attempt by customers to pay late.

Collecting debts efficiently is the crux of good cash management, as is being consistent in credit-checking new and existing customers. A consolidated plan for credit management that starts on first contact with a customer can significantly reduce future pressures.

Too much debt

Holding excessive debt is draining and demoralising, the pressures experienced by directors in these circumstances being immense. Creditor pressure can quickly become an issue, taking directors’ attention away from achieving the increase in sales that could pay off the debt.

Begbies Traynor is the largest UK business recovery practice and can advise on the best course of action for your company in these circumstances.

HMRC

HMRC systems highlight late payers very quickly, and although HMRC is not a secured creditor, they have some powers to pursue debts without recourse to the courts. HMRC offers a helping hand in the form of Time to Pay arrangements, but once your company becomes delinquent on tax obligations, or preferably even before this happens, you need to be proactive and not wait to be contacted by an HMRC officer.

Negotiations can prove difficult, however, particularly if they take the view that your company is unwilling rather than unable to pay.

Access to borrowing

Even if excessive debt is not an issue, access to borrowing continues to prove difficult for many companies in unstable economic conditions. A company with few or no significant assets will be at an increased disadvantage, being unable to leverage their inherent value.

The banks’ reduced capacity to lend and an increased aversion to risk makes it very difficult for some companies to access the borrowing needed to navigate their way out of trouble.

Overtrading

Taking on a large order may be seen as an indication of business success, with company growth being the natural next step. Some companies do not factor in the extra costs and timing issues, however.

Extra staff may be needed to fulfil the order, leading to a significant increase in payroll liability. New stock might be required, or new equipment hired – all in advance of payment from the customer.

A single order from a prominent new customer, when combined with poor preparation and cash flow management, can quickly derail a business that was previously performing well.

Losing a significant customer

On the other side of the coin, losing a major customer can also cause a cash crisis within the business. Whether the customer’s loss is due to their own insolvency or prevailing market conditions, it will be keenly felt.

The percentage of total revenue represented by that customer will dictate the overall loss, revealing the dangers of relying on one or two major customers rather than spreading revenue across a broader customer base.

Stock control

Effective stock control is a continuous balancing act of trying to anticipate demand without committing too much money upfront. Do you err on the side of caution to maintain customer service levels, but risk using up valuable working capital unnecessarily?

An added problem is that if stock has been held for some time, it may not be possible to sell it at full market value.

Begbies Traynor is the largest business recovery practice in the UK, with an extensive UK office network. We can provide the guidance needed to effect a business turnaround, and offer a same-day consultation free of charge.

Contact our team

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Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
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