How do you know the problems you’re having aren’t signs of potential business collapse?

If your business isn’t doing well, it’s quite easy to mistake the warning signs of potential collapse for the day to day problems all businesses suffer.

Why is that?

I find it’s because the problems that ultimately lead to the failure of a business creep up on you over time, they somehow become ‘the norm’.  You do nothing about them because you either believe you can’t or you won’t because the pain of putting them right is too big, if only in your mind – it’s far easier to defer dealing with them.

But surely money, or the lack of it, is the root cause of all business failures?

Well no, it’s a lack of money that eventually kills the company because it stifles the business, but the root causes generally lie much further back in time, when the business had cash.  So even then the root causes are not always financial, they can be but often aren’t.

So why is it that it’s only when the money problems become critical that you seek professional help?

We’ve already discussed part of the answer to this.  It’s far easier to kick the can down the road for another day than it is to face reality here and now.  Another reason that I often see in the Black Country, is that business owners have a habit of  ‘going back to the lathe’ when problems hit.  Small business owners go back to their comfort zone of being a ‘technician’, avoiding the painful decisions they should be taking if they were to wear their ‘manager’ and ‘entrepreneur’ hats – read Gerber’s book, the E-myth for more on this.  They work harder doing what they know best in the hope that this somehow papers over the weaknesses elsewhere in the business.  They mistake activity for effectiveness.  They can only do this for a limited amount of time, eventually the problems overwhelm the technician’s best efforts.

So what are the best signs of potential corporate collapse?

This is a really difficult question.  There’s no easy answer.  However I believe that the best signs are nothing to do with money! – this is because money problems are mere symptoms, they are not the root cause of a business’ woes: the deep seated issues that cause businesses to collapse lie elsewhere.  And not being money signs, business owners, even those with limited financial awareness, should be able to notice them.  It’s a questions of awareness – reading the signs for what they really are.

So what are the signs?

Here are the warning signs we regularly come across:

Early signs

  • Your competitors are doing things differently, but you aren’t, you long to return to ‘how things used to be’
  • You don’t know what your competitors are doing
  • You are working harder than ever, you are near breaking point, your health and personal relationships are suffering
  • Your best staff are leaving, you’re taking on more of their roles
  • You lie awake at night, worrying
  • You are hiding the true position of the business, your investment in it, and your exposure to it, from your family
  • You are reliant on two or three main customers
  • You don’t really listen to the opinions of other people
  • Your accountant merely prepares the annual accounts and gives you some limited tax advice, nothing more, certainly nothing strategically
  • You feel as if you’re on your own, and the whole world is against you
  • Your cost base appears wrong for today’s business levels, it’s getting more difficult to cover your costs every month.  You hope for two or thre good months a year to make your money
  • You don’t have any alternative plans
  • You’ve taken no holidays this year, you work almost every weekend, you spend little quality time with your family
  • You don’t fully understand the figures, how your business makes works
  • You recorded a loss last year, you are not certain to make a profit this year
  • You want to retire or exit the business but cannot
  • You do well only when the economy is buoyant, at the moment you’re holding on by your fingertips.

Late signs

  • The lack of cash is dictating everything you do
  • The business has made losses for two years in a row, little has changed since then
  • No one is willing to lend you any more money
  • You are receiving county court judgements or visits from bailiffs; you are taking longer to pay across your VAT, Paye and NIC; the bank is bouncing cheques or reducing your facility; you can’t pay your rent; or some suppliers have put you on stop
  • You are spending more time dealing with customer complaints or on the shop floor than looking for more business
  • You are waiting for that one big opportunity to turn things around. Increasingly it looks like you are gambling
  • You cannot see a clear way forward for the business, you’re just hoping something comes along to turn things around
  • You have borrowed money on personal credit card or against your house to put into the business. And that’s all been spent and nothing has really changed
  • You’ve not drawn any money out of the business for the last two months.

As you can see, the warning signs in the later stages of corporate decline include far more references to cash and the figures.  However by then it can be too late to save much, if anything of the business as the problems elsewhere, the root causes of the decline, will have gained a firm hold of the business, similar to smouldering fires which have by now taken hold across all areas of an oil tanker.

If your business demonstrates a combination of these warning signs, whether ‘early’ or ‘late’ call Paul today on 01902 672323.  And don’t delay, because we can achieve more the earlier we are brought in, we have far more tools in our toolchest than other liquidators.

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