The potential for unmanageable debt and for overtrading are identified as two key pitfalls for businesses as they seek to recover from lockdown.
In the latest red flag alert from Begbies Traynor warned that 93,000 more UK businesses had “weakened to the point of ‘significant financial distress’ in the quarter to the end of March”.
The company predicts that even more companies could slide into insolvency as lockdown eases, citing the reasons above as two likely drivers.
K2 Partners has warned before about the dangers of overtrading, when a business tries to ramp up its activity too quickly, running up a big rush of sales on credit without the cash to pay its suppliers.
Our advice is to always and stringently monitor and manage cashflow and beware of being misled by Balance Sheet figures, which can paint an over-optimistic picture because they include fixed assets and possible new money from investors.
K2 will soon be offering a free Cash Management tool for businesses to download and use.
In the meantime, businesses should also concentrate on maintaining a good relationship with their bank and there is some guidance here https://www.linkedin.com/smart-links/AQF0zn8hTCKbSw to help you.