What are the common red flags that a business is failing

Published on 26^th August 2022

Written by Keith Tully, partner at Real Business Rescue

With business insolvencies on the rise and organisations of all sizes struggling to deal with rapidly increasing costs, spotting the red flags of business failure is now more important than ever.

Fortunately, there are certain issues, both strategic and day-to-day, which 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 insufficient 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. This instability isn’t always obvious, however, if there’s no useful management information available, such as cash flow 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 flows 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 effective 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 confirm their financial situation hasn’t changed.

There’s no clear management information

If you don’t have useful information to steer your decisions, it’s a definite red flag for the business. Confirming your cash position is the first 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, affect your organisation’s cash flow, leading the business towards severe decline. It’s difficult to overcome the loss of predictable income from major customers, especially if it represented a significant 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 financial decline and ultimately enable growth.

For further information on identifying factors to suggest a business may be failing, please contact Keith Tully at Real Business Rescue on 0800 644 6080. Keith specialises in restructuring and turnaround support for businesses concerned about cash flow pressure and the threat of insolvency. He’s worked in business turnaround for more than 30 years.

What makes Top Service Different?

When mainstream agencies look at credit information they number crunch. They use the last set of accounts and any public record information to produce credit limits and scores. It’s a pretty good way to look at credit information but it can overlook information that a person notices, for instance: What has happened from the time the business filed its last set of accounts to the time the credit check is performed?

Top Service Insider Intelligence is construction-specific information that provides up to date, relevant, reliable information to enable more informed business decisions to be made when accepting an application for trade credit. 

As the only credit reference and debt recovery agency specific to the construction industry, we make it our mission to ensure our members receive the most up to date, credit information and company trading experiences. Our insider intelligence can make a real difference between company profit and painful write-offs. 

What you need to know about Top Service?

• Our bespoke collection strategies mean that no case is treated the same. Our access to credit information and exclusive trading experiences enables us to change strategy quickly when our incoming intelligence is received, providing excellent results.
• Fast, effective collections. We know that speed is of the essence, so all collections are given top priority.  We don’t just go through the motions, our experienced and highly skilled team members are adept at tricky negotiations, dispute resolution, tracing absconded debtors and thinking outside of the box to achieve tangible results.
• Fully compliant.  We have been trading for 30 years and we have always taken compliance very seriously.  We are authorised by the FCA and Top Service Ltd is a corporate member of the Credit Services Association (CSA).  All senior Top Service staff are members of the Chartered Institute of Credit Management and collections professionals are hand-picked and trained to the highest standards. 
• We have more than 30 years of experience in collecting commercial and contract debts.