Early Warning Signs

Businesses do not fail overnight. A business under financial stress and approaching insolvency is likely to exhibit a number of signs that, if acted upon, can result in a successful turnaround of the business and thereby avoid an insolvency appointment. Typical warning signs that directors may observe include:

1. Making a loss or sustained pattern of loss over a period of time
2. Poor Credit Control (Increasing Bad Debt)
3. Poor Stock Control (Overstocked, Inaccurate records, Obsolete Stock)
4. Increasing Creditors (Increasing Amounts/Payment Cycle/Stop supply)
5. Threats of legal action from creditors
6. Non Payment of ATO and employee superannuation
7. Increased usage in alternate Suppliers
8. Inability to produce accurate, meaningful and timely financial or management reports
9. Over concentration on Turnover rather than Profit
10. The necessity to inject more and more funds to fund losses
11. Sale of Major Assets/ Injections from shareholders
12. High Staff Turnover
13. Lack of Guidance/Control from Management
14. Incompatible Directors
15. Reliance on Revaluations or intangibles to keep the balance sheet “healthy”
16. General Disarray
17. Changes to Banking Arrangements or continued operation at or above overdraft limits

These early warning signs are by no means exhaustive; however, they should be considered when you are carrying out a critical review of your business which must be done on a regular basis. They should also be kept in mind by you when you are dealing with external parties, such as customers, to identify risk areas. Some businesses fail simply because a major customer or supplier has failed on them. One of the most important points to remember is not to wait until your business is exhibiting all of the above symptoms. Early advice can prevent business failure and if you experience a number of these symptoms, please contact Brooke Bird to arrange for an obligation free meeting with one of our insolvency professionals.