Stop! Danger ahead! Last year more than 12,000 businesses went into liquidation. None of them thought it would happen. None of you think you’ll be among this year’s statistics. Some of you will be.
It’s the harsh reality of business that just when you think everything is going well, potential hazards present themselves.
In many cases the warning signs are staring you in the face – but that doesn’t necessarily make them easier to spot. They are your enemies, so stay clear-headed as the 13 – unlucky for some – signs that follow could see your company up in smoke before you can say ‘administration’.
1) Stretching cashflow
Cashflow has to keep up with your business as it grows. If it doesn’t it’ll turn every healthy aspect of your growth rotten. Your order books might be overflowing, but it means nothing if you can’t afford to pay suppliers, rent, salary and amenities until you get paid. It sounds obvious, but you wouldn’t be the first to be lulled into a false sense of financial security on the back of orders.
The warning signs should be all too clear. If your business is winning contracts and expanding, yet you’re constantly strapped for cash, you probably need to raise fi nance. If you don’t and run out of working capital then what seems like a temporary cash shortage could escalate out of control, according to Eric Savill at Barclays’ Business Support Unit.
“In the worst case scenario, when your cheques bounce, customers and suppliers will lose faith in you,” he warns. “The rumour mill will start churning and before you know it, you’ve got a bad reputation.” Global Seafood Trading, which sells seafood to restaurants, got into cashflow problems despite being inundated with orders. It paid suppliers on a weekly basis, but customers were taking up to 60 days to cough up. Invoice fi nance was the solution for the company, helping it get hold of funds a mere 24 hours after raising an invoice.
RED ALERT: You’re waiting on payments in to make payments out
DANGER RATING: 6/10
2) Bringing senior management in and stepping back
A progressive move but one with a high degree of risk. It’ll be a culture shock for staff and could cause friction as you install ‘big business’ pillars into your ‘small business’ structure. Cut yourself too loose and you won’t be able to feel any legitimate ripples of discontent. Appoint the wrong management and give them autonomy while you relax in the golf club and you could have even bigger problems.
Ex-Red Letter Days boss Rachel Elnaugh found keeping track of senior people difficult. She says it all went wrong when she took on a new CEO and FD, but failed to set up adequate reporting channels.