Distressed companies – what are the warning signs?
What about a company? What are the tell tale signs that they might be in over their heads financially? What do we mean when we talk about a distressed company anyway?
There can be many definitions but the primary factor is if a company can’t generate sufficient income or revenue because it can’t meet its financial obligations.
This can be for various reasons including high fixed costs such as rent or business rates. It can include poor cash flow, illiquid assets that cannot be sold or realised or seasonally sensitive revenues – relying on holidaymakers or Christmas shoppers for instance.
There are some clear signs that a company is in distress that can be seen both internally by staff who, regardless of what some managers think, have eyes and ears and by people outside of the business looking in:
- Falling profits, inability to break even or incurring losses
- External capital required to bolster the business and maintain normal company operations
- Worsening credit status
- Late making payments or missing payment deadlines altogether
- Reduced quality of products and services
No Money, Big Problems
Day-to-day life in a financially distressed company is a struggle for everybody.
Obtaining finance to ensure the business still operates on regular lines can be more difficult as lenders will either withdraw available funding options or make the products available even more expensive to obtain and service going ahead.
If word gets out about a business’ situation then sales and income could drop even further as customers are naturally loath to trade with an organisation that might not exist to give them a refund or fulfill their order.
Suppliers will also be equally wary. They could tighten their terms requiring shorter payment periods, raise their prices unilateral or demand cash payments up-front rather than extending 60 or 90 day payment periods.
There’s also the problem of staff. Not only will moral be suffering from fear of losing their jobs and security but there is a real danger of important or top performing staff looking for other positions and leaving, further damaging the company’s prospects of recovery.
It’s good to talk
There are several options that a business can consider to put itself back on a sound footing. The easiest of which is to contact us for a free initial consultation with one of our expert associates.
They will be able to help you work through your business plan and ideas for recovery and honestly appraise your chances of success and what you need to do to follow through thoroughly.
They may also advise you that it will be unlikely or impossible for the business to recover and that a properly managed voluntary liquidation will be the best solution for you, the company and your staff.
If there is a chance to recover your business then they will tell you, but equally importantly, they will also tell you if there isn’t.
Either way, a free consultation with us will help you be clear about your options earlier and let you act on them quicker.