Poor financial performance and not heeding the early warnings signs can hinder the success, growth and future expansion of any business. To assist you and your clients in determining the strength of their businesses financial position, we have identified some key early warning signs that a business may not be tracking as expected.
If these key warning signs are detected early enough by a director, management and / or an external advisor, there may be options and opportunities available to manage and turnaround any short term financial difficulties being experienced with a view to circumvent any future hardships.
Key early warning signs of possible financial difficulties:
| Warning Signs | Yes / No |
| Continuing losses being experienced | Yes / No |
| Overdue Commonwealth and State taxes | Yes / No |
| Poor relationship with present bank, including inability to borrow further funds | Yes / No |
| No access to alternative finance | Yes / No |
| Inability to raise further equity capital | Yes / No |
| Suppliers changing terms to Cash on Delivery (“COD”), or otherwise demanding special payment arrangements before resuming supply | Yes / No |
| Creditors remaining unpaid outside normal / industry trading terms | Yes / No |
| Reverting to use of post-dated cheques to “trade out of a difficult patch” | Yes / No |
| Dishonoured cheques | Yes / No |
| Legal letters of demand, summons[es], judgments or warrants issued to recover outstanding debts | Yes / No |
| Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts | Yes / No |
| Clients becoming less involved in the control and management of their business | Yes / No |
Without engaging in a complete health check of your client’s current financial position, there are some areas that you might already be able to quickly review in order to form a basic assessment of their financial circumstance.
A few simple areas for review – what to look for:
- Undertake a review of your client’s financial statements over the past few years and even past few months. This should provide you with an immediate snap shot as to how your client has performed historically as opposed to how it is presently performing financially.
- Review their Running Account Balance from the ATO portal in order to determine whether their tax lodgements and payments are up to date.
- Review both their aged receivables and payables in order to determine whether they are collecting their debtors on time as well as remitting payments to suppliers within normal terms. Any significant changes should sound warning bells and a call to action!
- As the accountant’s office is generally the registered office of the company, carefully review and question the circumstances around any legal demands etc that are being received in the mail.
- Difficulty in getting information from your client to complete the necessary returns and financials in accordance with statutory deadlines should also be a call to action.
If you would like more information on how to conduct a financial health check with your clients, please contact one of our expert advisors on 1800 246 801.