Time for your summer business health check
Schools and parliament are both still on holiday and even if you’re counting the days until you go away or if you’ve just returned from a break and are planning your next one – there’s definitely a vacation feeling hanging around like the lighter nights and the smell of outdoor barbecues.
So while half the country is kicking back on holiday and the other half are kicking back in the office, why not use the downtime to do a summer company health check?
It’s the perfect time to lift the bonnet on the business and kick the tyres while things aren’t 100% flat out. You’ll get an accurate picture of how things really are under the surface and if you spot any small problems, you’ll have time to fix them before they become big ones.
So here’s our Business Rescue Expert summer health checklist to apply to your business and make sure your company is fighting fit by the time everybody’s back and the leaves are ready to fall.
The following are just indicators of underlying issues that while not terminal in and of themselves, could turn into huge future headaches if not addressed.
Frequently at your overdraft limit
An overdraft is a really useful temporary safety net for individuals and businesses – that’s why it’s there.
It becomes a problem indicator if it’s constantly used or even breached. If this happens, the bank can refuse to process payments that would take you further into the red which can also become worse problems once suppliers, customers and staff find out.
Needing extra time and money
Paying less is always better than paying more; sometimes having extra time to pay can be an advantage too.
Constantly asking for extra credit/time to pay from various suppliers or financial institutions is a red flag. If a company eventually becomes insolvent and this pattern of behaviour is uncovered then it could even be viewed as wrongful trading.
Increasing bad debt
A sad fact of business life is that some debts just won’t be recovered. Just because you prepare for it doesn’t mean you like it – it’s just being prudent. The level of bad debt however, is an indicator on how efficient your own debt management systems are.
If bad debts are increasing then this is reduces the amount of working capital available to you which could become a serious issue if left unchecked.
Not getting paid
Similarly, how long is it taking to collect debt that is actually paid? If it’s increasing over time then the compound effect can subtly mount up to hamper you. Not having the funds to hand when you need them is bad for your business, even if you do get them eventually.
Debtors taking a longer time to pay could cause you to be late with your creditor payments which could even lead to…
Not paying creditors
Patience is a finite resource and while some companies have more than others – nobody has an infinite resource. Well, one guy did 2000 years ago but he doesn’t work for a company that could bring legal action against you to enforce payment.
Not all debts are equal, nor are creditors. If you owe the HMRC tax or National Insurance arrears then you need to deal with these first and quickly, because be assured that if you don’t, they will.
Poor cash flow
Usually the first sign that things aren’t well within a company.
Basically it’s having less money coming in than going out and can be for many reasons including insufficient or inefficient debt collection and credit management. It can also occur if a business holds too much stock unnecessarily which can reduce the amount of working capital available to them.
Too many staff in an underperforming company can be a drain on resources, similarly understaffing can lead to other problems including burnout, dissatisfaction and being unable to complete orders efficiently.
High staff turnover can also be a sign of strife including a signal that something isn’t quite right and the best are heading for the lifeboats early or that hiring is an area to be looked at if the right people aren’t being hired or retained.
Too many question marks about staff can quickly translate into question marks about the business itself.
Lack of management knowledge
Of course a tuned-in management will be aware of these concerns and issues before they happen. It’s when management is out-of-touch with the workforce and other workplace developments that can raise concerns about a firm’s sustainability.
Directors have an obligation to be aware of a company’s financial status at all times and if they don’t have access to the latest figures, or ignore their responsibilities, then there could be serious consequences down the line if insolvency follows.
Efficient and accurate management information systems are integral to any well-run business so it might be an idea to check yours are up-to-speed before you actually need to use them.
Having too much business sounds like a nice problem to have until you actually have to deal with unfulfilled orders, angry customers and a sinking reputation for reliability and trustworthiness.
If a company takes on too many orders without having the means to fulfill them then it is overtrading. Immediate solutions such as more staff, material and expedited shipping will be expensive and could presage an additional cash flow crisis.
If you know or discover that your business has one of these factors within then you need to take action sooner rather than later. Contact one of our expert advisers to arrange a free initial consultation.
We can look into where a company is at and help you make the decisions you need to take to get back onto the pathway to profitability.