The jump in insolvencies in September follows a similar increase in August. However, there was a drop in July. So is this a blip or a precedent that we should be concerned about?
The underlying trend in insolvencies is not looking very positive. So, for businesses in the UK, there is a balance needed right now. Nervousness about the economy and the continuing price pressures is understandable and a note of caution is to be recommended. That said, it isn’t all gloom and there are some small green shoots of a potential financial spring, such as the rate of inflation slowing and the strong employment situation. The balance between the two mindsets is where most Directors will currently be finding themselves. Too negative and you risk becoming so insular that you stifle any potential growth. Yet, while I am always one for optimism, it will only take you so far and then you need to be realistic. I see a lot of businesses where over-optimistic directors have made questionable financial decisions. I don’t want to seem to be a wet blanket (but occasionally someone must be) but there is a lot to be concerned about. We need to recognise and accept that.
Two consecutive months showing a 19% and 17% increase in insolvencies, following a 13-year high at the beginning of the year, should be setting off some fairly loud alarm bells.
As always there is no single factor. It is easy, and a little comforting, to point to the big things and say, “There is the bogeyman under the bed”. Not that I am playing down the clearly huge problems currently facing business. There are some major challenges ahead, particularly for the already beleaguered sectors such as retail and hospitality. However, it would be wrong to focus on a single monster such as inflation as the only cause.
The situation is a complex interplay of causes many of which, such as the rise in supply costs and the rate of inflation, are directly related, and some of which, such as the war in the Ukraine, are volatile factors that cannot be easily anticipated. Seemingly smaller incidents, such as the recent localised damage from storm Babet, may not seem nationally important, but they are if you happen to be the unfortunate business in Lincoln that was forced to close for a period due to flooding. Retailers such as Wilco may well make the headlines, but the smaller retailers are battling the same issues as well as more locally focused problems.
That said we can certainly look at a list of those major problems and recognise that these are some of the main, global, international, and business factors impacting the insolvency rises.
As I said, there are also further conditions closer to home to consider and it’s a real mistake to label these as secondary and somehow less important than the bigger picture.
Rather than list these as problems though, let’s put the undoubtedly worrying national situation on a more positive footing and move into what business can do right now at a local level.
If you take a glance back through our recent articles you will see a repeated piece of advice, and it is a simple one… Cash is king. All insolvencies are about a lack of money in the end and usually, that is about a stalled cash flow. Your long-term prospects may be great, and you could well be the next big thing once the current unsettled market settles down, but if the coffers are empty and nothing fills them in time to pay your running costs, you are likely to become insolvent.
One of the hardest parts of my job is seeing the human cost of insolvency, particularly where the Directors have simply been unable to resolve the cashflow problems. So, start with knowing where the money is and isn’t going to be a problem. Forget optimism, don’t think about anything that is only possible income, forget all the maybe and could be scenarios and just look at the real situation surrounding income and outgoings. You want to be able to say “I know my numbers” with total confidence.
Once you have these you can use them to really assess where you stand. For the moment, forget the bigger picture. Stay focused on what is important… the finances of your business.
With all the big problems floating around, it’s even more important to focus on what affects you. Stay local and focused on your own needs and you will always know where you stand.
There’s more help for directors on our website and if anything in this article has raised concerns about insolvency, call us, or arrange an appointment for a free assessment chat on our website here.
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