Top tips to help your business avoid some common pitfalls

Shareholder or other disputes, inadequate management information, limited or no forecasts, poor working capital control and inappropriate finance are more often than not key contributors to distress or a business failure (as opposed to the prevailing economic conditions at the time). 

As we enter a period of potentially significant economic challenge, below is a list of top tips to help give your business the best chance of navigating the current challenges:

• Quality management information is vital.  If the only method for assessing your financial performance is the statutory accounts, it will likely be too late to address challenges posed by losses that can quickly erode shareholder value.
• Likewise, there are few things more important to a business than a quality set of integrated forecasts.  Without forecasts, how can you undertake scenario planning, identify future funding requirements or indeed secure new finance or investment?
• Working capital has a cost.  Stock and debtors need to be funded so monitor them closely and don’t let them get out of control.
• Finding the right people is increasingly a challenge. If you don’t have the right mix of staff or skills, particularly in the finance department, consider other options for finance support. Cloud accounting software has reduced the barriers to outsourcing some, if not all, of your finance function.  Likewise, whilst the cost of engaging an interim FD or other finance professional may seem high at the outset, their strategic support will likely prove invaluable in the long run.
• Try to match finance to the life of an investment. If you spend £1m of your working capital on equipment or a project that is expected to yield 10 years of benefits, you may soon find your business facing cash flow challenges in the short term however good the long term return is expected to be.
• Treat your main stakeholders with care.  Debenture holders and other secured creditors have one hand on the levers of power of your business.  The more you can do to given them confidence (see earlier tips on management information and forecasts), the more likely they are to be on your side if the road turns bumpy.
• Litigation is harder to exit than initiate.  Make sure all options are explored prior to issuing formal legal proceedings as terminating further down the line without the other party’s consent will likely be costly.
• Lift up the bonnet.  If you are considering acquiring another business, make sure you invest adequate time and resource (including professional support) to undertake appropriate due diligence.  Walking away from a transaction is often much less costly than completing a poor acquisition.

Finally, seek advice and support, whether this is from your accountant, solicitor, funder or a turnaround professional, all of these parties stand ready to provide both formal and informal support.

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