Andrew Duncan of Bridge Business Recovery LLP reports that with statistics suggesting the number of companies going into liquidation is up 56% in the first quarter of 2009, insolvency is an issue that hangs heavily over many businesses in today’s gloomy economic environment. But ignoring it’s potential presence won’t make it any less real and, according to Andrew Duncan, Partner at Bridge Business Recovery LLP, we ignore the “I” word at our peril. 

Here, he lists the early warning signs that may indicate the onset of problems that, if left unaddressed, could lead to insolvency.

Financial Clues:

·         Bank overdraft consistently at or above its limit

·         Bank requesting additional security or personal guarantees – or reducing the overdraft facility

·         The business using Crown funds for working capital through non-payment of PAYE or VAT

·         Creditor and/or debtor days are increasing

·         Creditors supplying goods and services on a pro forma basis

·         Creditors sending warning letters or beginning legal action

·         Number of customers declining

·         Late filing of accounts or annual return

Management Clues:

·         Management is:

o        Constantly fire fighting

o        Not producing or interpreting management accounting information

o        Lacking a current year budget, accounting and internal controls

o        Avoiding tackling core issues

o        Lacking a strategic plan

o        Taking disproportionate levels of remuneration

o        Constantly arguing

·         There’s a high turnover of staff and the team is demoralised

Detecting problems using a check list such as this can be relatively straight forward; but appreciating the underlying causes can be more complex.  Of course, just because a business demonstrates one – or even several – of these symptoms, it doesn’t necessarily mean that insolvency is the diagnosis.  Businesses don’t generally become insolvent overnight and the early detection of the symptoms of failure could make the difference between resolving short term issues and having to deal with fundamental problems that may result in insolvency.  A frank assessment of the problems is essential in deciding whether or not the business is viable in the long term.

That’s why it’s also important to work with skilled experts like the team at Bridge Business Recovery when deciding what action to take. We specialise in finding ways to help shareholders, lenders and management preserve their stakes in a troubled business and, wherever possible, put it back on a viable footing.  This might mean taking advantage of our established relationships with a wide range of funding partners or our integrated restructuring support.  If, however, the problems are deeper rooted and a formal insolvency process is the answer, our team is here to guide you through the process.

The message is clear:  in today’s environment, it’s dangerous to ignore the possibility of insolvency.  It’s a fact of life in the current market and professionals should not be afraid to address the issue with their clients.  The earlier a problem is identified, the more options there will be available to preserve the value of a business and its reassuring to know that expert help is on hand.

For more information about how Bridge Business Recovery can help, contact Andrew Duncan on 0207 025 6130. www.bridgebr.co.uk