Insolvent - Warning Signs for the distressed business

If you can recognise too many of the following signs then it is likely that your business is probably under pressure, at risk, or it could be even be insolvent. Look through these signs, print off this page and tick those that apply. If you get an uncomfortable feeling that it is familiar - follow the guides on "how to use this site". If you are concerned make sure you have read Insolvent?

Bank - see bank’s view

· 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 a small firms loan guarantee scheme loan (SFLGS).

· 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 property.

Reporting

· You have not filed the company’s accounts in time and have incurred a penalty.

· You have not filed the company’s annual return.

Creditors

· Cash flow always tight so paying creditors is difficult.

· Inefficient production - can’t get stock because you can’t 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 - ie 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 creditors.

· 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.

· You are having to handle creditors calls every day.

· You have had visits by Sheriffs or bailiffs.

Debtors - see Debt collecting for help.

· 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 annum multiplied by 365.

· Your company has concentration in 1 or 2 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

· I don't know how much they owe me.

· I don't know how much the company owes the factor.

· They don’t seem to understand my business.

· I 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

· Autocratic leadership – is it one person running the show?

· The management team can’t perform because of:

o Firefighting - you never get your work done;

o Lack of information or wrong information;

o Concentrating on non essential issue;

o Senior people seem paralysed into inaction.

o Are you "compartmentalising" problems. in other words do you deal with one creditor problem and ignore others.

o Do you blame the:

§ Bank;

§ Creditors;

§ Debtors;

§ Accountants;

§ Advisors;

§ Everyone;

o You don’t have a business plan.

o You don’t have regular management meetings.

o You don’t have board meetings.

o You don’t like changes.

o Directors are taking big salaries and expenses.

o You ignore advice of others.

o You have an overdrawn director’s current account.

You and the management don’t know

· Gross Profit - accurately.

· Costs - accurately.

· Sales.

· 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:

o How many units of your product you make per day?

o At what cost?

o How many units you need to make to break even?

o How many enquiries do you need?

o How many enquiries do you convert into sales?

o How many people it takes to make this product?

o What is your sales performance compared to last year, last month, budget?

o What are your costs increases/decreases year on year?

o How many new customers you have gained this year?

o How many customers you have lost this year?

o And why?

PAYE

· 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

· Not filing returns or paying tax on time.

· Had surcharges.

· Doing deals over time with the local VAT office.

· Cannot keep up with deals.

· Cashflow says you can repay far more than profits made.

· Debt recovery unit pressing.

· I’m not that bothered about the VAT.

Other 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

· You don't produce monthly management accounts.

· “Sage” or similar computerised 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 demoralised.

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.

Legal actions

· County Court Summons - CCS’s - we have had a summons but what is it?

· County Court Judgments - CCJ’s - we have had these but what is it?

· Warrants - we have had one of these but what is it?

· Walking possession – we have had one of these but what is it?

· Statutory demand – we have had one of these but what is it?

· Winding up petition we have been threatened with this - what is it?

Click here for a description of these legal actions

OK, now you have read through this there must be some familiar signs. Now go to Is our company insolvent? page to see if the company is insolvent. Don’t worry it is a condition not an end result.

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BUSINESS FAILING? WARNING SIGNS