Most of the time, the way you run your business may not be the direct cause of this, as it could be caused by conditions which you can do absolutely nothing about.
For example, you could lose significant business to your closest opposition, tourism or local business could be in a state of a serious recession or you might be in debt due to non-payment of a major bill. Whatever the cause of the problems in your business is, it is important you know what to look for when they are about to occur.
The list below covers a few things you should be mindful of. You should also bear in mind, however, that the occurrence of any of these things does not automatically mean your business is going to fail or require a formal insolvency procedure such as a Company Voluntary Arrangement or Pre-Pack Administration.
While some of the below mentioned things should already be a part of your bigger business plan, you should take note of them when they happen unexpectedly.
Cash flow problems
Weak cash flow has caused many businesses within hospitality, even the seemingly sturdy and successful ones to die. Cash flow is mainly about the inflow and outflow of money in a business, and the time and frequency in which these happen is also crucial.
Periods when too much money flows out at a time or when incoming payments are late can take a heavy toll on operations. If you find yourself struggling to pay suppliers, employees and HMRC on time, chances are you already have a weak cash flow situation.
Since businesses are usually involved in many dealings, it could be difficult to find out what the source of the problem is. Make it a constant practice to check your inflow and outflow as this habit helps you determine how much money your business is coughing out constantly so that you can easily cut your unnecessary costs and make sure you are getting paid on time.
Trade slowing down
If you notice that you are not getting as many bookings or enquiries as usual, or there has been an increase in stock levels or empty rooms, then you should already have an indication that things may not be going as well as they should.
When this happens, you should take time to find out what is going wrong, whether your opposition is destabilizing you, your services or venue is now outdated or not in fashion, or the industry is in a whole different place from where it used to be.
Needing longer payment terms
If you are already arranging longer payment times with your creditors, you need to check to see if you are trying to manage cash flow or if your business is already in distress. If you find that you can’t meet up with due dates for debts payment, then you could be technically insolvent. If this is the case, you need to get a professional to check your business out before it’s too late to take action.
Key staff leaving or regular bookings coming to an end
Losing regular large bookings or equally loyal employees can be a sign of change and also a step in an unknown direction. This shouldn’t be a time to lose your nerve. However, it is necessary for you to stay alert to see how this change affects your business as a whole.
You could find out that you have no need to worry after all, as the new employee could easily fit in and fill the shoes of the former, and you could end up signing a more lucrative set of bookings than the ones you have previously lost. However, if you find it difficult to find a contract as profitable as the previous one or a newcomer as efficient as the former employee, you may have a problem on your hands which would require a quick solution.
Looking for additional funding is good for expansion, but it could also serve as a sign that things are not very well with your business. Always check to see why you are sourcing for more funding and find out if you should worry about it or not.
Make sure you watch out for these signs mentioned above and act quickly. More often than not, you’ll be able to come up with a plan to help rectify the situation. However, if you ignore these signs for too long, most of the efforts you take to revive your business could prove futile.
Rick Smith is director and founder of Forbes Burton, an insolvency and company rescue specialist.