As seasonal businesses gear up for peak winter trading we discuss the issue of over-trading – and highlight the key insolvency warning signs that business owners should keep watch for.
With Q4 almost upon us seasonal businesses are poised to capitalise on the opportunity and grow. But as our August blog [54% of business owners ignore cash flow forecasting] exposed, 54% of seasonal businesses feel a cash flow squeeze in this time of plenty. With 72% struggling with lengthy payment terms, 48% extending their overdraft, and 16% turning to invoice financing to make it through.
Trouble is, startup businesses experiencing their first winter season are often caught out. There are also many established seasonal businesses who have become so used to the highs and lows of trading that they’ve pushed the limit too far and are no longer able to meet their financial commitments.
To help business owners, we asked Nicole Southwell of Bretts Business Recovery – a firm of licensed insolvency practitioners, business turnaround and recovery specialists, and Oscar Fairchild’s go-to insolvency partner – to share her advice for seasonal businesses.
Nicole says, “In the flurry of seasonal trading businesses can often become distracted from the numbers, and at risk of insolvency because they’re unable to meet financial commitments due to a shortage of cash. This is especially true for bars, restaurants and events venues who may have experienced a slow summer and are now holding out for bumper Christmas trading.
In this early Autumn lull my advice is to take stock of the firm’s management accounts. Don’t allow your business to get to the stage of CCJs, WRITS and statutory demands – and don’t throw best practice to the wall by using customer deposits to fund trading. Work with your accountant first to understand management accounts and stay on top of credit control. If problems persist talk to a specialist licensed insolvency practitioner early when creditor pressure rises, because then you have options, including payment plans.”
Insolvency Alarm Bells
- Over-trading – presenting as a lack of capital to pursue growth and / or declining profit margins
- Constant overdraft position – always at the limit (and often beyond)
- Frequent *FINAL DEMAND* letters
- Unable to pay HMRC or PAYE as due
- Outstanding debts with HMRC
- A high percentage of bad debts and a significant debtor ledger
- Avoiding financial information requests – using delay tactics
- Creditor pressure – only paying at final demand stage
- Using customer deposits to fund trading
If you’re a seasonal business hit by a cash-flow squeeze, and experiencing one, two, or all the insolvency alarm bells then they key is to start a conversation with a business recovery specialist as early as possible.
Kim Redwood-Lee, managing director at Oscar Fairchild, says: “In meeting seasonal demands SME businesses are often waiting up to 3 months to be paid by customers. This can be a stretch, even for the most prepared businesses who follow best practice financial management processes. Often, when the first signs of insolvency appear an experienced small business accountant can help firm’s take control of credit control by running regular business debt health checks and helping to keep cash flow within safe limits. If you’re worried your business has already over-reached, then a business recovery specialist can help you use all of the financial tools available to get things straight, and steer clear of insolvency.”
About Oscar Fairchild:
Oscar Fairchild (incorporating Redwood Clarke since 01.09.18) is an ACCA chartered and certified and AAT qualified accountancy & bookkeeping practice with offices in The City of London, and Billericay, Essex. Offering a wide range of services including Self-Assessment Services, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pension and Management Account services to high growth businesses across London, Essex and Hertfordshire.