Below are the tell tale signs that a company is in trouble. Many of them seem obvious and some not so obvious. As a professional advisor you may not know all the information but asking some questions should give you some pointers.
These are the common complaints or statements made by distressed directors to KSA Group as insolvency advisors.
- The overdraft is always at the limit?
- The bank always wants more information.
- The bank has returned cheques.
- The bank has refused to increase our overdraft.
- The bank refuses to provide a term or EFG loan.
- The bank has asked for facilities to be reduced.
- The bank wants to introduce investigating accountants for an independent business review
- The bank asks for increased security.
- The bank wants personal guarantees.
- The bank wants to increase personal guarantees.
- The bank wants security against our own personal property.
Reporting - warning signs
- The business has not filed the company’s accounts on time at Companies House and has incurred a penalty.
- The business has not filed the company’s annual return at Companies House.
- Cash flow always tight so paying creditors is difficult.
- Inefficient production - we can’t get stock because we can’t pay creditors on time.
- We can't get stock on time because we miss deadlines for payment of supplier accounts.
- We cannot get new credit.
- We cannot extend existing credit.
- The company’s creditor days growing – (divide the amount of money you owe creditors by the sales per annum and multiply by 365).
- We don't meet agreed payment terms.
- The business has lots of failed deals with creditors.
- The business has lots of red warning letters.
- The business has had lots of legal actions.
- The business is "Peter & Pauling" – using lots of suppliers and spreading credit around.
- The directors are always fighting creditor fires and having to handle creditors calls every day.
- Suppliers can’t obtain trade insurance against your company.
- The business has had visits by Sheriffs or bailiffs.
- They just don’t pay on time.
- The business doesn’t know what its total debtors are.
- Debtor days are over 85 days: divide the amount of money you are owed by debtors by the sales per annum multiplied by 365.
- The company has concentration in 1 or 2 major customers (debtors).
- The accounts department only invoices periodically. We do not have a dedicated debtor collection function.
- The business doesn’t want to issue too many credit notes - although you know the goods supplied have been faulty, returned or under agreed quality.
- We don't know how much they owe us
- We don't know how much the company owes the factor.
- Our factoring company is reducing our advance.
- They don’t seem to understand our business.
- We can never get enough advance against our invoices.
- They are advancing 75% against my invoices but disallowing lots of invoices.
- They are too expensive.
- They claw money back from me after the debtor has not paid in less than 90 days.
The next blog will be warning signs from Managment, Finance, staff and Systems. These warning signs brought to you by companyrescue.co.uk
More than 5,000 people have contacted KSA Group since Keith launched this unique website in 2000 and over 500 companies have now been directly assisted by the author over the last 15 years with assignments ranging from large multi national projects to small manufacturing companies, to simple advice over the phone.
For example, Keith ran a £500m sales company in an Administration plus CVA rescue in 2004 and that company (now much smaller) survives with sales over £100m or so. Keith has worked with much smaller concerns from £300k sales upwards and he is currently leading the turnaround of a £120m service company, (CVA).
Keith started his career as a retailer and experienced the savage recession of the 1990's first hand. This was before the banks had a planned approach to dealing with SME's failure. Close struggling businesses first; ask questions later was the response then. Of course this was driven by insolvency practitioners who wanted big fees.
So he learned a lot in a short time and thought "how can we help struggling businesses"?
He joined a specialist turnaround firm in London in 1994 and has helped set up two venture capital companies since, specialising in the distressed / turnaround sector. Since then he has focused on driving the delivery of free information to distressed business people and promoting the use of CVA's, innovative administrations and informal turnarounds.
Keith is a former director of the UK Turnaround Management Association and an associate of the Turnaround Finance Group.
There isn't much he hasn't seen, he is an entrepreneur and vastly experienced in turning around companies. Talk to Keith directly if you want.