How to spot the signs your business may be in financial distress

Published: 04/10/2022 By Hannah McCormack

We always suggest seeking advice at the first sign of financial problems within your business but how do you know when or what these signs are?

We believe financial distress is where a business does not have enough money / revenue / income – whatever term you feel comfortable using, to pay its bills and other financial obligations as and when they arise. If you can spot the signs before they get to a point where it is unmanageable, there are far more options available to turn the business around.

Some of the more common signs of financial distress can be:

Taking longer to pay your creditors – this is a sure sign of cashflow issues which may in turn lead to the company being less able to pay all its creditors and debts as and when they are due.

Failure to pay tax debts – not being able to pay NI, PAYE and or VAT can be a key indicator that the company's finances are not stable. We often find that HMRC is a large creditor in many of the liquidation cases we deal with.

Unable to pay Pension deductions – as with the tax debts being unable to pay the deductions from employee wages to the pension provider.

Lack of growth and investment – being unable to invest in new opportunities for the business such as people, technology and marketing.

Unable to carry out repairs – not being able to undertake essential repairs and maintenance to machinery and or buildings.

No or limited directors’ remuneration – if the director/s are not able to draw income from the business, it can be another sign of distress.

Stock levels – higher than usual stock levels could indicate a dip in orders which could be an early warning sign that orders are reducing which would in turn lead to the financial position deteriorating.

Company accounts – these should give a better indication as to how the company is performing, it would be best to go through these with a professional to explain any red flags.

If any of these signs appear, we strongly suggest seeking help and advice from a professional such as an insolvency practitioner, your business may just need a few simple changes in order to rescue it back to a healthier position.

At turpin barker armstrong we specialise in turnaround and pride ourselves on assisting businesses back to good health rather than proceeding with a formal insolvency option. We offer a free initial consultancy where we can talk through your situation and give you advice tailored to you with no obligation to commit to anything.

Get in touch to see how we can turn your business around today!. Call us on 020 8661 7878 or email insolvency@turpinba.co.uk