Insolvency – What are the warning signs?

At the start of 2020 research by KPMG highlighted that as many as one in five UK companies were in a position of financial stress.  Since then, UK businesses have faced additional pressure brought about by the Covid-19 pandemic.

The Office of Budget Responsibility has predicted a default rate of approximately 40% on Bounce Back Loans (BBL) and CBIL finance with £27.2 billion of these loans expected to be written off.  Some recent reports have suggested that the number of company insolvencies could potentially be even higher than at the height of the global financial crisis back in 2009.

It is critical that businesses look ahead at the loan repayments they will need to make, watch for the insolvency warning signs and seek expert advice.  If your business experiences any of the following issues you should seek advice from a licenced insolvency practitioner, as soon as possible to avoid company closure.

• Creditor Pressure

If your company regularly exceeds payment terms with suppliers, or receives demands for payment, this is a key cause for concern.  Defaulting on your debts, whether they are trade debts or commercial agreements, could cause reputational damage to your business, or a reduced credit rating.  It is also much more likely to increase the chance of a creditor taking action to recover what is owed to them.

• Cash flow Difficulties

Many businesses will face a temporary squeeze on cash from time to time.  In itself this is not cause for concern but, if cash flow is frequently or constantly under pressure then this indicates there is a deeper issue which needs to be resolved.

• Poor Sales

A reduction in sales is a key cause for concern for any business.  Some reductions may be temporary due to unforeseen events or the loss of a key customer.  If your business is experiencing a sustained reduction in turnover, and you do not believe the situation will improve then you may need to consider cutting costs where possible, or in serious cases consider whether your business remains viable.

• Reduced Profit Margins

Even if sales are steady, it does not necessarily mean the business is profitable.  If your prices are adjusted to remain competitive, or your costs of sales are too high then your profit margin will suffer as a result.  It is always important to look at your bottom-line figures (net profit or loss), not just the level of turnover.

• Expensive Borrowing

If you are seeking business loans or other finance, and are offered high interest rates, or asked to give a personal guarantee with security over your personal assets, this is a sign that lenders are cautious about advancing credit to your business.

Contact Insolvency Practitioners – Keywood Group

If you recognise any of these issues within your business please do not hesitate to contact us for impartial, comprehensive advice about the options available.  The earlier these problems are addressed, the easier it is to continue trading successfully.

If the warning signs are ignored then it becomes much more likely that your business will face further problems such as a County Court Judgement, a Statutory Demand, or even a Winding up Petition.  These are serious difficulties which could result in your company closing down.

Keywood Group are a Licenced Insolvency Practice and our team has extensive experience in dealing with company closures, or helping you to assess the alternative options available.  If you want further information, please contact us for a no obligation chat.