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financial distress
3 Sep

Spot the signs of financial distress and act NOW!

The COVID-19 pandemic has presented a challenge unprecedented in its challenges across the world. In response to the successful rollout of the vaccine in the UK, and the completion of the roadmap to freedom outlined by the Government, the majority of restrictions have been lifted and businesses have been able to operate in a fashion closer to normal. The pandemic forced around 1.6 million businesses to borrow in excess of £75bn from the Government, and furlough nearly 9 million employees at the peak of the pandemic. The Job Retention Scheme has undoubtedly saved countless businesses and jobs across the nation, and the various grants and loan schemes made available provided a well needed cash injection when businesses needed it most.

financial distress

Now the country is getting back to a sense of normality, the Government backed support is coming to an end, headlined by the closure of the Job Retention Scheme. At the time of writing, there are 30 days left until the final claim period ends, with the final claim deadline being 14th October. The Government will pay up to £1,875 per furloughed employee for this final month and then it will be up to Directors to plan from how they will address the future of their wage bill.

Any business owner who is seeing the signs that their business may be coming under financial distress need to act now, and seek advice from a qualified expert before it is too late. As with all problems, the earlier you face the problem, the more solutions open up to you and with that, more time to make the right decision in moving forward.

Our team at CMA understand the troubles your business may be facing, especially with the end of the furlough scheme, and the payments falling due on the loans made available by the Government. A typical sign of financial distress is where a business is lengthening its creditor days, meaning the number of days it takes for you to pay suppliers and meet your debts from the date the payment is due. This is usually a clear pointer to cash flow issues, and may be an indication that the businesses position will become increasingly perilous. Some of the other signs that can point toward a business not having sufficient cash to pay debts include:

  • Outstanding tax liabilities: Failing to pay your tax liabilities such as PAYE, National Insurance, Corporation Tax or VAT can often be a key element of losing control of your businesses finances. HMRC debts can easily rack up, and having them as a large creditor can quickly see interest and penalties rise.
  • Unpaid pension contributions: Under Auto Enrolment obligations, businesses must operate a pension scheme for their employees. Most businesses use smart software’s that automatically calculate the pension deductions from their employees, and these are often collected via a Direct Debit. Failure to pay these deductions is not a good sign for either the cash position of the company, or for employee morale.
  • Rising stock levels: A rise is stock levels can be an early indication that sales to customers are reducing. Whilst there can be other explanations for a higher than expected stock levels, if it is becoming a noticeable rise, you can take it as a sign that the businesses financial position is deteriorating.
  • Lack of investment: Investing in your company can comprise a number of different things, from investing in new technology and machinery to marketing and your employees. Failing to invest can be a sign that you are running into cash problems.
  • Defaulting on payments: it can be easy for anyone to miss a payment during a busy and stressful period, but if the frequency with which it occurs increases or you are starting to consciously opt to miss payments, this is a clear sign of financial distress and can pave the way for liquidation down the line. It can also affect your ability to acquire credit from lenders or your suppliers, which could be a welcome reprieve to have available.

If you are concerned about your position, and feel that we may be able to help you take that first step in arresting the problem and move towards a stronger financial position, please do not hesitate to get in touch with us!

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