What are the Warning Signs of a distressed partnership?
If you recognise some or many of these random signs, 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 and advice on this site to help you out. And if that is all too stressful, contact us today, for some free, tailored advice. Do not shy away!
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 facilities.
1.5. Your bank has asked for facilities 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.
2.1. Cash flow is always tight so paying creditors is difficult.
2.2. Inefficient production - cannot get stock because you cannot pay creditors on time.
2.3. Don't hit targets, cannot get stock /services on time.
2.4. You cannot get new credit or extend existing credit.
2.5. The businesses creditor days are growing - i.e divide the amount of money you owe creditors by the sales per annum and multiply by 365.
2.6. You have lots of failed deals with creditors.
2.7. You have lots of red warning letters.
2.8. You have had lots of legal actions.
2.9. You are "Peter & Pauling" - using lots of suppliers and spreading credit around.
2.10. You are always fighting creditor fires.
2.11. You are having to handle creditors calls every day.
2.12. You have had visits by Sheriffs or bailiffs.
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 debtors.
3.5. Your accounts department only invoices 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 less than agreed quality.
4.1. They don't seem to understand my business.
4.2. I can never get enough advance against my invoices.
4.3. They are advancing 75% against my invoices but disallowing lots of invoices.
4.4. They are just too expensive.
4.5. 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. Are you "compartmentalising" problems? 5.3. The partnership team cant perform because of;
- Firefighting - you never get your work done
- The business has a lack of information or wrong information
- Concentrating on non essential issues
- Partners seem paralysed into inaction
5.4. Do you blame the:
5.5. You don't have a business plan 5.6. You don't have regular management meetings 5.7. You don't meet your advisors regularly
5.8. You don't like changes?
5.9. Partners are drawing more money than the business can really afford.
6.You and the other partners don't know
6.1. Gross Profit - accurately?
6.2. Costs accurately
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?
The Key Statistics of the business:
6.1. How many widgets you make per day?
6.2. At what cost?
6.3. How many widgets you need to make to break even?
6.4. How many enquiries do you need?
6.5. How many enquiries do you convert into sales?
7.1. You are not paying deductions on 19th of the month following.
7.2. You have not filed monthly returns or paid the tax deducted.
7.3. You have had penalties.
7.4. You have entered into deals with the Revenue.
7.5. You are well behind with tax paperwork this is a failure to maintain a PAYE Scheme.
7.6. Taxes and other social security entry on audited accounts seems high.
7.7. Tax Collector pressing.
7.8. Debt recovery unit dealing with account.
7.9. Partners tax affairs are behind
7.10. Not bothered about IR.
8.1. Not filing returns or paying tax on time.
8.2. Had surcharges.
8.3. Doing deals over time with the local VAT office.
8.4. Cannot keep up with deals.
8.5. Cashflow says you can repay far more than profits made.
8.6. Debt recovery unit pressing.
9.1. You cannot stand going into work on a Monday.
9.2. You breathe a sigh of relief when Friday night comes.
9.3. You don't open your post.
9.4. You don't take calls from irate creditors.
9.5. You dread the bank calling.
9.6. You cannot sleep.
9.7. You are falling out with those around you:
9.8. Your partners at home;
9.9. Your partners and staff at work.
9.10. You are very lonely at work.
10.1. Sage or similar computerised accounts package shows negative balances in liabilities.
10.2. You have a computer generated profit and loss but a handwritten balance sheet.
10.3. GP constantly overstated - you just do not understand why no profits are made from such good gross margins.
10.4. Wasteage understated.
10.5. Constant returns, faults disputes with debtors.
10.6. Things always going wrong.
11.1. High staff and management turnover.
11.2. Political issues causing difficulties.
11.3. Things always going wrong.
11.4. Another partner is showing signs of distress or pressure
11.5. Another partner is insolvent
11.6. Another partners spouse is insolvent
11.7. You are personally insolvent
11.8. Your spouse is personally insolvent
12.1. Always refinancing assets.
12.2. Just need x,000 to sort this problem.
12.3. The next big sale/contract/debtor payment will sort the problem out.
12.4. You have introduced a number of new financial products to keep going.
12.5. You have borrowed money against your home to fund the business.
12.6. You have given personal guarantees to the lenders
12.7. You are not taking money out of the business to live.
13. Legal actions 13.1. County Court Summons - CCSs - we have had these but what is it?
13.2. County Court Judgments - CCJs - we have had these but what is it?
13.3. Warrants - we have had one of these but what is it?
13.4. Walking possession we have had one of these but what is it?
13.5. Statutory demand we have had one of these but what is it?
13.6. 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 Insolvent? page to see if the partnership is insolvent. Don't worry, it is a condition not an end result.
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.