Q: What are some of the reasons for a business going under?
Mar 23 2010
Answered by: Marc Barber Ask a question
As well as insolvency occurring as a result of sales being too low or costs too high, outside events can also force a business into insolvency.
For example, you may be owed a large sum of money by a customer who is slow in paying and may even be unable to pay. A common complaint for small businesses is that some large companies are prone to do just that, be very slow payers, and this can start the vicious circle ending in failure.
But there are warning signs that can be detected that identify businesses at risk of failure. These can be any or all of the following:
- You only pay a supplier when a writ is issued, and your suppliers are refusing to sell you any more goods.
- You are near or above your overdraft limit at the bank.
- You are unable to raise any more money
- Your liabilities are greater than your assets.
Earlier warning signs or faults with the business could be:
- The boss takes no advice
- The managing director or chairperson is the same person
- The board of directors does not take an active interest
- The skills of the business are unbalanced
- There is no strong financial person.
- There is no budget, cash flow plan or costing system.
- The business is failing to respond to change.
If your business displays some of these characteristics, while not yet being in the advanced stage of failure, get advice now, either from your professional adviser or your local Business Link or equivalent organisation.
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