Director information hub: Signs of company distress
How you might know if your company is in distress.
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You might think the answer to this question is obvious. But many companies ignore or, in some cases, remain unaware that their company is in distress.
If you know what the signs are, then you can take steps to avoid more serious financial difficulties.
5 signs your company could be in financial distress
1. Cashflow problems
If you have money coming in and going straight out again, then you’re probably experiencing cashflow problems.
Every company should have a reserve of cash set aside for unforeseen circumstances. Could your company pay an unexpected bill or meet the expense of essentials like equipment or staff if you won new business?
2. Not paying bills on time
If you cannot pay bills on time then it’s bound to be obvious there are financial problems. As well as financial difficulties, the reputational damage can have an impact on your company’s ability to trade.
3. Putting off tax payments
HMRC may consider a company in distress if it started paying PAYE or National Insurance contributions late.
Putting off PAYE or National Insurance contributions might seem like a short-term solution to a shortage of cash, but it’s a potentially disastrous way of keeping your company going.
4. Being charged high interest on any loans
If you try to borrow money from your bank and they charge above average market rate in interest it could be a sign that a bank thinks you are a risky borrower. The higher the risk to the bank, the higher the interest is on loans they offer.
5. Profits are low despite high sales
Sales margins are what makes a company profitable. Just because you’re selling a lot of things, does not mean you’re making a lot of profit. You could be selling too cheap or what you are selling is at the limit of what you can sell It for. Whatever the reason, low margins could signal trouble in the long run.