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News - 14 August 2012

Company insolvencies still rising

The number of firms going into insolvency in England and Wales continued to rise in the second quarter of the year.

The Insolvency Service said the number of firms going into receivership, administration or a company voluntary arrangement rose by 1.5% from the first quarter, to 1,310.

That means company insolvencies were 6% up on a year ago.

It is more important than ever to be aware of the signs that your business could be struggling, so we asked two of our resident experts, TK and Stuart what signs they looked for.

Tonmoy Kumar, Manager of the Accounts Department of ABDS says:
“At ABDS we have a system of warning flags which can be applied to most situations. The first three of these are”

1/. Having difficulties covering (or failing to cover) the monthly PAYE, corporation tax or quarterly VAT bills.

This is a massive early warning sign (think of Glasgow Rangers FC). If you have such difficulties, contact ABDS immediately so that we can negotiate with HMRC

2/. Experiencing regular cash flow problems.

Even successful companies can experience this. You need to be ruthless in ensuring you have a sufficient cushion of working capital, and avoid collecting client debts too late or paying creditors too early.

3/. Failing to invest in new equipment, resulting in high maintenance costs, poor efficiency and loss of market share to competitors.

Thrift can sometimes be fatal. The solution to this is to invest in your own company, as over time it pays dividends.

Stuart Coleman, Manager of the Tax Department of ABDS continues:

4/. Constantly asking the bank for a higher overdraft limit or larger loan, or even considering remortgaging or borrowing to keep your business going.

In our experience you need to understand that simply having more money at your disposal is rarely the solution. The key is to change something more fundamental within the business, contact ABDS for an independent review.

5/. High incidences of customer complaints and returns.

New business is important, but make sure that you do not ignore existing clients and customers while you seek to acquire new ones to improve your position.

6/. Being busy but with no discernible improvement in the financial position of the business

If you find you are spending more time "fire fighting" than actually running your business, you need to rectify the core problems, not stick your head in the sand.

These warning flags do not necessarily mean you will go bust, but the longer you leave them the worse it will get.  If you are a sole trader rather than, say, a limited company, your company's liabilities are deemed to be your own. With small or medium-sized limited liability companies, directors often provide personal guarantees and therefore their own personal position is inextricably linked to that of the company.

It is not only you but the livelihood of your staff as well.

If you need any help and advice for your business on strategic planning, reducing Debtor Days, cashflow and Payment Terms contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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