If you think your business may be showing signs of stress, then it is important to focus on the day-to-day operations otherwise it can be easy to miss the early warning signs.
Just by reviewing the cash balance in the bank and having some understanding and intelligible appreciation of your future cash needs is not enough to ensure your company’s security.
It is important to keep an eye on the following:-
Identify Symptoms of Business Stress
Look for any deteriorating results or a decline in profitability, in particular at an operating level. Check to see if there are any significant ‘exceptional’ costs, breached, waived or manipulated covenants.
Consider any deteriorating Key Performance Indicators (‘KPI’s), reviewing the following:-
Revenue per Client – The most common, and probably the easiest KPI to track is Revenue.
Average Employee Attendance – If the employee attendance rate is 95% this is considered generally acceptable.
Client Retention Rate – this identifies the percentage of customers that the Company has retained over a set period. So, if the review shows you have managed to retain 80% of your customers, then this is also a good sign.
Profit Margin – the profit margin is a ratio of your Company’s profit (Sales less all Expenses) divided by it’s Revenue. The profit margin ratio compares profit to sales and tells you how well the business is handling its overall finances.
Review Reduced Liquidity – this is where you can identify the businesses inability to meet interest payments or scheduled costs. Evident signs are poor or negative operational cashflow, high non-operational cashflow and tight or reduced cash reserves.
Refer to the Balance Sheet – If the business creditor liabilities are increasing more than business growth or there are deteriorating credit ratings, it is imperative to review the balance sheet with your accountant. Go through the figure in detail so that you can fully understand the numbers.
Look at Operational Challenges – Many operational issues are where problems arise which can render the business less profitable. If your business is facing difficulty fulfilling orders on time or there is increased use of ‘short-term’ cost reduction programmes this needs to be reviewed.
Next Steps
If you want to find out anything further about this topic then please feel free to call on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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