Insolvency Warning Signs for the Soletrader

Warning Signs

Is this your business?

If you recognise some or many of these random signs, your business is probably under pressure, at risk or you 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?

1. Bank
1.1. Your overdraft is always at the limit.
1.2. Your bank always wants more information.
1.3. Your bank has returned cheques.
1.4. Your bank has refused to increase your overdraft
1.5. Your bank has asked for overdraft to be reduced.
1.6. Your bank asks for increased security.
1.7. Your bank wants personal guarantees.
1.8. Your bank wants to increase personal guarantees.
1.9. Your bank wants security against your own property.

2. Creditors
2.1. Cash flow always tight so paying creditors is difficult.
2.2. Inefficient production - can’t get stock because you can’t pay creditors on time.
2.3. You can’t get stock /services on time because you miss payment deadlines.
2.4. You cannot get new credit.
2.5. You cannot extend existing credit.
2.6. The business’s creditor days are growing - ie divide the amount of money you owe creditors by the sales per annum and multiply by 365.
2.7. You have lots of failed deals with creditors.
2.8. You have lots of red warning letters.
2.9. You have had lots of legal actions.
2.10. You are "Peter & Pauling" – using lots of suppliers and spreading credit around.
2.11. You are always fighting creditor fires.
2.12. You are having to handle creditors calls every day.
2.13. You have had visits by Sheriffs or bailiffs.

3. Debtors

3.1. They just don’t pay on time.
3.2. You don’t know what your total debtors are.
3.3. Debtor days are over 85 days: divide the amount of money you are owed by debtors by the sales per annum multiplied by 365.

3.4. Your business has concentration in 1 or 2 customers.
3.5. Your only invoice periodically.
3.6. You do not have a dedicated debtor collection function.
3.7. You don’t want to issue too many credit notes – although you know the goods supplied have been faulty, returned or under agreed quality.

4. Factoring
4.1. They don’t seem to understand my business.
4.2. I don’t know what they owe me
4.3. I can never get enough advance against my invoices.
4.4. They are advancing 75% against my invoices but disallowing lots of invoices.
4.5. They are just too expensive.
4.6. They claw money back from me after the debtor has not paid in less than 90 days.

5. Management: (If applicable)
5.1. Autocratic leadership – is it one person running the business?
5.2. The business team can’t perform because of problems:
5.3. Firefighting - you never get your work done
5.4. The business has a lack of information or wrong information
5.5. Concentrating on non essential issues
5.6. People seem paralysed into inaction
5.7. Are you "compartmentalising" problems?
5.8. Do you blame the:
5.8.1. Bank?
5.8.2. Creditors?
5.8.3. Debtors?
5.8.4. Accountants
5.8.5. Advisors?
5.8.6. Everyone?
5.9. You don’t have a business plan
5.10. You don’t have regular management meetings
5.11. You don’t meet your advisors regularly
5.12. You don’t like changes?
5.13. You are drawing more money than the business can really afford.

6. You don’t know -
6.1. Gross Profit - accurately?
6.2. Costs – accurately
6.3. Sales.
6.4. Orders taken.
6.5. Enquiries quoted for.
6.6. Bank balances.
6.7. Where 80% of work comes from.
6.8. Where 80% of profit comes from.
6.9. What your accounts say – they are wrong usually
6.10. Your market – what are your competitors, products and threats?

7. The Key Statistics of the business:
7.1. How many units of product you make per day or hours of time needed to be profitable?
7.2. At what cost?
7.3. How many widgets you need to make to break even?
7.4. How many sales enquiries do you need?
7.5. How many enquiries do you convert into sales?
7.6. How many customers you have lost or gained this year?

8. PAYE /TAX
8.1. You are not paying deductions on 19th of the month following.
8.2. Your tax affairs are well behind
8.3. You have not filed monthly returns or paid the tax deducted.
8.4. You have had penalties.
8.5. You have entered into deals with the Revenue.
8.6. You are well behind with tax paperwork – this is a failure to maintain a PAYE Scheme.
8.7. Taxes and other social security entry on your accounts seems high.
8.8. Tax Collector pressing.
8.9. Debt recovery unit dealing with account.
8.10. Not bothered about IR.

9. VAT
9.1. Not filing returns or paying tax on time.
9.2. Had surcharges.
9.3. You are over threshold but haven’t registered for VAT
9.4. Doing deals over time with the local VAT office.
9.5. Cannot keep up with deals.
9.6. Cashflow says you can repay far more than profits made.
9.7. Debt recovery unit pressing.

10. Yourself
10.1. You cannot stand going into work on a Monday.
10.2. You breathe a sigh of relief when Friday night comes.
10.3. You don’t open your post.
10.4. You don’t take calls from irate creditors.
10.5. You dread the bank calling.
10.6. You cannot sleep.
10.7. You are falling out with those around you:
10.8. Your partners at home;
10.9. You staff at work

11. Systems
11.1. You don’t produce monthly management information
11.2. Sage or similar computerised accounts package shows negative balances in liabilities.
11.3. You have a computer generated profit and loss but a handwritten balance sheet.
11.4. Gross Profit is constantly overstated - you just do not understand why no net profits are made from such good gross margins.
11.5. Wasteage understated.
11.6. Constant returns, faults disputes with debtors.
11.7. Things always going wrong.

12. People
12.1. High staff and management turnover.
12.2. Your staff always seem demoralised
12.3. Political issues causing difficulties.
12.4. Things always going wrong.
12.5. You are personally insolvent
12.6. Your spouse is personally insolvent

13. Finance
13.1. Always refinancing assets.
13.2. Just need £x,000 to sort this problem.
13.3. The next big sale/contract/debtor payment will sort the problem out.
13.4. You have used all your personal financial resources to keep the business going
13.5. You have borrowed money against your home to fund the business.
13.6. You have given personal guarantees to the lenders
13.7. You are not taking enough money out of the business to live.

14. Legal actions
14.1. County Court Summons - CCS’s - I have had these but what is it?
14.2. County Court Judgments - CCJ’s - I have had these but what is it?
14.3. Warrants - I have had one of these but what is it?
14.4. Walking possession – I have had one of these but what is it?
14.5. Statutory demand – I have had one of these but what is it?
14.6. Bankruptcy petition I 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 Insolvent? page to see if the partnership is insolvent. Don’t worry it is a condition not an end result.

Back to top

BUSINESS FAILURE - WARNING SIGNS