As many as one in five small businesses could be overtrading.
What does this mean?
Overtrading is when a business absorbs working capital at a faster rate than its customers pay their invoices. If the money runs out - then a successful business can be left unable to take on new work, pay its bills or workforce; and at worse could fail.
If a business suspects it is overtrading, it should take immediate action to maintain a positive cash flow. This means speeding up the time it takes to collect payment from its customers and arrange for an additional cash injection to cover the shortfall in working capital.
TEN SIGNS OF OVERTRADING -
- Have your profit margins dropped over the last twelve months?
- Has there been a large rise in the number of companies you are invoicing?
- Does anyone company represent more than 25% of your outstanding invoices?
- Are your customers taking longer to pay that 12 months ago?
- Are you struggling each month to meet your fixed overheads?
- Would you bank turn down your request for a larger overdraft facility?
- Have you increased your workforce to help meet new orders?
- Is your turnover increasing while your income stays the same or falls?
- Have you purchased new plant and equipment recently?
- Has there been a sharp rise in your variable costs like labour and materials?
If you have answerred YES to three or more of these signs - then you could be overtrading.
If this is the case, it is essential to seek professional finance advise and we would be more than happy to sit down and discuss this with you.
REMEMBER:
" CASH IS KING - PROFIT IS A MATTER OF INTERPRETATION"
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