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Business debt management

How to spot the warning signs and act on them

Many financial difficulties can be resolved relatively easily, but, left unchecked, some can have more serious consequences.

Understand the causes and spot the warning signs

It’s not uncommon for businesses to experience financial difficulty. By being alert to warning signs and preparing for all eventualities you can deal with issues before they become serious.

  • It’s important to understand the key drivers of performance to give your business the best chance of long-term success. 

    Many of the problems affecting business performance fall into at least one of the following categories:

    1. Cash
      The way a business manages cash in the short term is an essential part of ensuring long-term success. It’s important to operate tight cash management – stopping the unnecessary outflow of cash from the business and taking advantage of any available surplus. Where there are difficulties in matching the inflow and outflow of cash, identifying what can be retained in the business to give a convenient ‘breathing space’ should be considered. This will give time to assess the options available and, if required, to secure a long-term finance solution.

    2. Profitability
      It's important to understand the profitability of your business so you can identify what's working well and what's not, and make informed decisions. Short-term cash problems will often be caused by underlying profitability issues in the medium to longer term. A particular part of the business may be under-performing, and in order to identify problem areas and make informed decisions, it’s important to understand profitability by business unit.

    3. Management
      It’s generally accepted that management strength is key to running a successful business. There are various ways of assessing people or management, including motivation, leadership, commitment and communication.
  • Keeping an eye out for early warning signs could help you spot any problems early on. These include:

    • Falling turnover
    • Deteriorating margins
    • Missing targets
    • Overspend against budgets
    • Increased use of overdrafts
    • Regular account excesses
    • Increased stock holding
    • More outstanding debtor payments
  • You can’t predict everything, so it’s a good idea to be aware of the situations that could catch you out. These include:

    • Loss of key staff 
    • Emergencies such as flooding or fire
    • Reputational damage
  • If you’re worried that your business is showing warning signs or has taken an unexpected blow, or even if you are already having financial difficulties, it’s important to let us know – the sooner, the better.

    You can do this either through your Relationship Manager or by visiting our contact pages.

    So we can give you the right kind of help or advice, it would be useful to have the following information handy when you talk to us:

    • Your current cashflow or budget, and likely future projections
    • Any changes in your or your business’ circumstances
    • Anything else you would like us to consider or think we need to know

Other sources of free advice

Here are the details of independent agencies that can provide you with free, confidential advice if your business hits financial difficulties.

Business Debtline

Provides expert debt advice to the self-employed and small businesses online and over the phone.

National Debtline

Provides impartial personal-debt advice to people across the UK, online and over the phone.

Citizens Advice Bureau

Provides advice on a broad range of topics including personal debt and benefits, face to face, over the phone and online.

Business Gateway (Scotland)

Provides business support services and impartial advice to companies in Scotland.

The Insolvency Service

A government agency that provides services and guidance to businesses experiencing financial distress.

Business Emergency Resilience Group

The Business Emergency Resilience Group (BERG) helps UK businesses prepare for, respond to and recover from flooding, cyber attacks and civil unrest.

Addington Fund

Provides homes for farming families living in England and Wales who have to leave the industry and by doing so will lose their home.

Royal Agricultural Benevolent Institution

The Royal Agricultural Benevolent Institution (RABI) provides support for farmers if they are in financial difficulty and of limited means.