Much has been written about the current economic climate with some reports suggesting that the number of companies liquidated in New Zealand 2008 was up by 40% on the previous year.
Often, one of the hardest things for any business owner is to admit that their business is declining. This article will help you spot some of the early warning signs.
The following list highlights some of the danger signs that should prompt you to take urgent action:
* You’re losing customers; increasing customer complaints or a loss of a key contract;
* You consistently fail to meet sales targets & operating budgets;
* You’re not paying staff on time or they resign to seek alternative employment;
* Your accounts payables are not paid on time; your accounts have been put on hold or you dread the ‘phone ringing for fear that it’s someone chasing payment;
* You cancel insurance policies;
* You are late paying your tax obligations or, worse still, do not pay them;
* You deal with cash flow shortages by raising finance using your personal assets as security;
* Your bank dishonours your payments or your account is transferred to the bank’s debt management team.
If you are experiencing just one or two of these problems, the alarm bells may be ringing from Invercargill to Cape Reinga, sounding that your business may be on a downward spiral. And if your business is experiencing more of these, then you should take notice, immediately, before it’s too late.
Receivership or liquidation is likely to be a costly and very stressful process and is almost certain to end with negative outcomes for you and your company. It’s also a common misconception that Directors can’t be prosecuted if you trade as a limited liability company. Liquidators can, and often do, seek to prosecute a company’s Directors if they can prove that they have traded recklessly by continuing to trade whilst the company is insolvent. Liquidators are often forced to sell assets at below market value for a quick sale. They may also enforce personal guarantees that you have given.
To avoid the ramifications of this, you should consult with your professional advisors urgently. Remember: They have the skills and experience of helping businesses. They should be able to develop an action plan and implement it to address these issues. This will probably include:
* Identifying ways to gain more sales;
* Reviewing your existing expenses to develop appropriate cost reduction strategies;
* Existing productivity levels to establish ways to measure and improve them;
* Reviewing your working capital requirements to help remain solvent;
* Reviewing your business structure, including your current staffing;
* Developing realistic financial forecasts and plans to monitor business performance;
* Securing short term funding by negotiating with your current bank or other lenders;
* Looking at potential opportunities to sell or merge part or all of your business.
Their 1st step will be to facilitate your ability to continue trading for the foreseeable future. You’ll stand a better chance if you are honest with both them and yourself. You’ll need a documented business plan with realistic assumptions and financial forecasts as many lenders now insist that you have them.
If you are in any doubt or are currently worried that your business is declining, contact your professional advisor immediately.