How to Recognise When a Company Is Suffering

Jul 26, 2021 | Corporate Insolvency

Businesses are struggling with financial problems. Find out how to identify problems and ask for financial advice early

It’s very likely that your business has been hit hard by the impact of the global slowdown as a result of the ongoing Coronavirus crisis. Many companies will have had cash flow problems as income slowed or just stopped, while outgoings and business expenses still have to be covered.

Seek professional financial advice as soon as you see the warnings. An expert operational and financial restructure of your business may help you to recover and stay viable and competitive.

Most companies will have financial problems at some stage. Those that recover understand that identifying and acting upon these warning signs is a vital business decision.

Ten warning signs of financial distress

1. Non-payment of tax liabilities

A business with cash flow problems will often choose to continue to pay staff wages and make payments to suppliers while not settling tax liabilities. This may feel like an effective use of cash, ensuring the business continues to operate. In the long term, however, your tax liabilities will increase, with the addition of penalties and interest for non-payment. If this situation continues, eventually the liability will become unmanageable.

If you find your business in this situation, ask for financial advice, early. Your financial advisors may be able to help you resolve the cash flow problems by restructuring your business and agreeing a repayment plan with the ATO may help avoid penalties and an increasing tax liability.

2. Continuing losses

Financial losses that have continued for two years are clearly untenable. Ask for a financial advisor to conduct a review of your situation. They may identify less efficient processes that aren’t adding value and should be stopped or improved.

You may be able to sell idle or non-performing assets, or replace them with assets that will help your business to become profitable.

Your financial experts may suggest that you reduce overheads, including employee costs, in order to stop losing money.

3. No access to credit

If you have had an application for new, or an extension to existing, credit rejected you need to consider alternative methods of freeing up cash. An investigative accountant could review and possibly revise your debt repayment terms, enabling you to continue trading.

4. Outside trading terms with creditors and supply on Cash on Delivery (‘COD”)

Your transactions with your trading partners are far outside your original agreement. 30-day payment terms are being ignored and seem to have become 60-day terms. Creditors are demanding cash on delivery for supplies.

Seek financial advice to review your trading agreements and help you get back on track.

5. Receiving demands and/or other legal notices

Your creditors have resorted to issuing you with final demands for payment or have taken legal action against you. You are well advanced on the slippery path to legal winding up proceedings for your company.

6. Decreasing Sales

If your trade has been steadily decreasing this may indicate that you need a cash injection to conduct promotion and marketing, or perhaps your business should diversify.

A professional financial expert will review your company’s place within the market and identify strengths, weaknesses. They will review opportunities and threats and help you to develop a plan.

7. Unfunded superannuation

Your business may be using your employee superannuation contributions as a temporary solution to cash flow problems, so you can continue to operate. This is a bad decision and you need urgent financial advice.

Superannuation contributions for your employees are to be remitted each quarter, within one month of the quarter-end. If these funds are not submitted on time, they become a debt due to the Australian Taxation Office and will increase when late-payment penalties and interest are applied.

Furthermore, the entire sum due to the ATO may be included in a ‘Director Penalty Notice’, making your directors personally liable for these debts.

8. Excessive reliance on related parties

You may have been borrowing funds from friends and relations, without any loan agreement or formal repayment plan, to keep your business afloat.

You should be aware that, if the company ends up bankrupt the friends and family that have lent you cash will be ranked equally with all other unsecured creditors, with no guarantee of ever receiving full repayment of their loans.

9. Low stock turnover

When your stock just isn’t moving, this will cause cash flow problems for your business. Very old or even obsolete stock will affect the value of your company’s assets and an adjustment of the stock value could result in a negative balance sheet position.

A financial advisor may ensure an independent valuation, determine the true value of your unsold stock.

10. High Accounts Receivable

You may be struggling to collect cash owed to your business, via invoices. This will affect your budgeting and will impact on the accuracy of your financial forecasting. This inefficient management of cash is often the beginning of serious financial problems.

A financial advisor will be able to assist to introduce a more efficient system for debt collection. They may recommend discounting your invoices or other solutions to help improve cash flow and to streamline your debt collection processes.

Conclusion – Contact Corporate Lifeline for help

Corporate Lifeline are experts who have already helped to rescue hundreds of companies from Financial Problems.

Our highly-qualified, experienced team will review, and analyse, your company’s financial situation and identify solutions to restructure your business.

Based in Sydney, Corporate Lifeline have friendly staff across Australia who are ready to help you to turn around your financial affairs.

You know how to identify the tell-tale signs that your business is getting into trouble. Contact Corporate Lifeline as soon as you spot any of these warning signs so we can work together to get your company back to profitable and competitive operation.

Get in touch today for free advice.


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