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Winter 2022 47 www.hae.org.uk www.eha.org.uk W ith business insolvencies on the rise and organisations of all sizes struggling to deal with rapidly increasing costs, spotting the red ags of business failure is now more important than ever. Fortunately, there are certain issues, both strategic and day-to- day, that signal problems ahead and can forewarn you to take the action needed. So what issues might provide a warning that your business is in decline? YOU’RE CONSTANTLY CHASING LATE PAYMENTS Consistent late payments subtly cause decline, but they can also sound the death knell for many businesses. Primarily, this is because the money isn’t coming in, but chasing overdue payments also consumes your time, diverts your attention, and prevents forward motion. THERE’S A LACK OF CASH If there’s insu cient cash available to pay the bills as they become due, it’s a sign that the company could be insolvent. Lack of cash insidiously destabilises a business over time. is instability isn’t always obvious, however, if there’s no useful management information available, such as cash ow forecasts and debtor days. YOU CANNOT SECURE NEW CREDIT OR BORROWING At some point suppliers and lenders will refuse to extend lines of credit or grant new borrowing when a business is in decline. Coupled with poor cash ows it leaves the business unable to move forward, and exposed to the possibility of legal action by its creditors. CREDIT MANAGEMENT IS INEFFECTUAL With no e ective credit management policy in place, it’s easy to unwittingly take on customers who pay late. Regularly credit checking new customers is essential for business health, but ongoing checks on existing customers should also be made to con rm their nancial situation hasn’t changed. THERE’S NO CLEAR MANAGEMENT INFORMATION If you don’t have useful information to steer your decisions, it’s a de nite red ag for the business. Con rming your cash position is the rst step, but being able to quickly access clear information on other areas of the business, such as how long your customers are taking to pay, is also essential. IMPORTANT CUSTOMERS ARE LEAVING If one or more key customers leave, it can seriously, and very quickly, a ect your organisation’s cash ow, leading the business towards severe decline. It’s di cult to overcome the loss of predictable income frommajor customers, especially if it represented a signi cant proportion of the business’ monthly turnover. Business failure can occur due to wide ranging problems but awareness of the issues and their impact on business can help you deal with the situation successfully. Taking positive steps early on, such as reliably collecting in monies owed and minimising bad debts, can slow nancial decline and ultimately enable growth. <<