3 Mins
The role of company director comes with numerous responsibilities but one of the most fundamental is promoting the financial success of the company. Recognising when a company is experiencing financial difficulties and seeking professional advice early can make all the difference to resolving issues effectively. So, how do you spot the warning signs of financial trouble?
Delayed payments to creditors
If the company typically paid creditors within the stated terms e.g. 30 days but starts stretching those terms to 45, 60 days or even longer signals there may be underlying cash flow issues. This must be addressed immediately to avoid escalating problems.
Increased stock levels
An increase of stock levels could suggest a slowdown in orders. It is essential to monitor stock turnover closely as it can be signposting that the company’s finances are deteriorating.
HMRC debts
HMRC is often the first creditor to fall into arrears due to its non-impact on the supply chain or daily trading activities. Unpaid tax liabilities, such as PAYE and VAT, can quickly accumulate, with late payment penalties and interest, to significant debt. This is a critical area where control must be maintained.
Reducing your prices
If you are looking to increase your cash flow by taking on more work but find yourself lowering prices to win orders, take a moment to assess whether the work is still profitable. Being busy does not always mean the business is thriving.
Unpaid pension deductions
Like HMRC liabilities, failing to remit pension deductions is a strong indicator of financial decline. If pension payments are being neglected, it is a serious warning that the company’s financial position requires immediate attention.
Directors’ remuneration
If directors are not taking a salary, this should raise a red flag. While it may be acceptable for directors to forego their income temporarily to address short-term cash flow issues, a prolonged period without pay indicates deeper financial troubles and warrants a review of the company’s long-term viability.
Lack of investment
A lack of investment in areas such as updating technology or marketing can signal financial strain. Similarly, if essential repairs to the business premises or equipment are neglected, it is a clear sign that the company’s financial position needs evaluation.
Stress and overwork
As a director or manager, if you find yourself working longer hours, constantly juggling financial decisions to prioritise urgent debts, and feeling overwhelmed, it is time to reassess the business. Stress is often an indicator that things are not running smoothly and that a more in-depth financial review is needed.
What do you do?
In two words – take control!
Review Your Finances
Ensure that your accounts are up to date and that you have detailed, accurate management accounts to fully understand the company’s financial position and outlook. If necessary, ask your accountant to help interpret the numbers.
Seek Professional Advice
Consult with an insolvency practitioner. They can identify the factors causing financial distress and provide an impartial, realistic assessment of your options moving forward.
If the business is still viable, restructuring may resolve the financial challenges. However, if insolvency is unavoidable, taking the responsible step to cease trading and mitigate further losses may be necessary.
Being proactive and taking the necessary steps early is the best way to protect your business and your interests.
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