Business failures decreasing but not out of the woods yet

Predictions for company failures in 2010 look set to be too high after the number of business insolvencies fell again in May

The data and credit check company Experian reported the following:

Company failures Jan-May were 8,729 compared with 10,835 for the same period last year

Company failures for May were 1,491, nearly 20% down on April and 24% less than May 2009

Experian commented that this was particularly due to improvements among Medium sized businesses (51-100 employees). The biggest increase in insolvencies was from those with 500+ employess.

The worst hit sector is building and construction with 230 company collapses in May, while the leisure and hotel industry suffered 123 failures and the property sector had 104 insolvencies.

The fall in the number of insolvencies is a good sign however company failures are far from over, the economy is bracing itself for more pain according to the widely-held belief that the number of collapses will rise as the UK steers itself through the recession. Businesses need to ensure they continue to exercise caution with regards to their risk exposure and those they choose to deal with.

So what can you do practically to keep the risk of going insolvent low? A reminder of my top 5 warning signs that the business is in trouble:

1. Get regular reports regarding the status of the company current account.
   If the account is permanently at the limit of the overdraft then urgent action needs to be taken to improve cash flow.
2. Don't wait for one more sale, contract or big customer to solve the cash flow problem.
   In the current climate, assume this may well not happen and give yourself realistic deadlines after which alternative action must be taken.
3. Have your accounts and annual returns been posted late? If so, you need to understand why this is and take appropriate action.
   It may be a simple mistake. However, in times of financial difficulty, the accounts department will often be distracted by other pressures and overlook accounts filing deadlines.
4. Are VAT and PAYE/NIC payments regularly made late as available cash is being used to pay suppliers to keep the business running.
   This situation can not be allowed to continue. HMRC will apply for a business to be wound up if crown debts are continually left unpaid.
5. Are you unable to secure new credit or extend existing lines of credit for the business?
   Banks are still reluctant to lend. If you find yourself in this situation, you need to consider options for cost cutting.

If any of these 5 situations apply that does not mean that your company is heading for failure. Investigate the reasons and look to see what actions you can take. Before taking radical action I would suggest taking to a business debt advisor as there may be solutions to resolve the problem that you had not considered.

Don't delay - take action now.

For more information visit http://coopermatthews.com/business-debt-advice.html

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Company Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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