Company Health Check

You may have noticed there has been a general slow down in your businesses sales due to weakening in the economy and consumer confidence. This slow down may now be impacting your bottom line. Rather than ignore the impact it is having on your business take it as a timely reminder to take a better look at your accounts and check the impact it is currently having on your business and extrapolate the trend to see how it will look three, six, nine and twelve months from now.
Take a close look at your sales, inventory, gross margins, accounts receivable and payables.

Sales
Sales will tell you the story about how much your business is growing or slowing. Quantifying the change in sales will begin tell you where your business is going.

Inventory
Check the inventory and assess the ageing, if it is now moving significantly slower you may need to look at ways of decreasing your stock and reducing inventory purchases. Even if it has not slowed a great deal it is a good idea look at ways of improving your inventory turnover. Money tied up in inventory is cash that can be better deployed elsewhere in the business or earning you interest.

Gross Margins
Gross margins are going to tell you if you are making money and if you have cash for your expenses. If you are able to break this down by product line you will have a level of control and power to improve your business and keep it profitable. You may be expending a great deal of effort selling lines that are not bringing in the margins your require whilst another product you have been neglecting has fantastic margins that are worthy of your attention.

Accounts Receivable
The important thing to look at in your accounts receivable account is the balance and the ageing. As the economy slows accounts receivables collections slow too. Keeping check of outstanding debtors is extremely important especially where a single debtor constitutes a material amount of your business. If you are dependent on several key clients watch for changes in payment, if possible try diversify your client base. I have seen well run businesses with a good product fail when one client could no longer pay their debts, don't let this happen to your business.

If you are not having success in collecting a debt from a client and you are getting worried about collection consider either contacting your solicitor and issuing the debtor with a statutory demand (stat demand) or passing the debt to debt collector on a success fee basis. A stat demand can be issued where the value exceeds a set level which will vary depending in which country you reside. The stat demand requires the debtor to pay the debt, in the event they fail to pay they will come before the court and may be made bankrupt or put into liquidation.

Accounts Payable
Your accounts payable account will tell you a great deal about the health of your company even if you already have a feeling you are needing to stretch supplier terms. Prepare a creditor aging schedule and take a look at how long it is actually taking you to pay your creditors it may suprise you to see it quantified in terms of how many days creditors have been outstanding. If you notice you are having difficulty paying your debts and are having to stretch supplier terms it may be worth seeking professional assitance to improve your working capital.
If you revieve a stat demand DO NOT IGNORE IT speak to your solictor or accountant straight away. If you do not respond and take action to the stat demand a winding up appllication may be lodged and your company liquidated.
It is vital that you keep up to date with your statutory payments such as taxes and work place insurances. Failure to pay these may result in these organisations lodging and application to wind up your company as you are presumed to be insolvent. Keep up to date with them and seek external advice from a professional accountant if you are falling behind and unable to pay them. I have seen many companies fail as they assume they can pay other creditors ahead of the tax man with no repercussions; they were wrong.

Project your accounts
If you don't prepare budgets you should start. Budgeting will help you keep track of where you have been and how you are comparing to your projections. Most importantly preparing budgets will show you where are heading and should flag up times where you may experience difficulty paying debtors or collecting receivables.
If your budgets are showing you are going to experience trouble in a month or twos time take action now, do not wait for the date to come or fudge your projections to "make the numbers work". Create a plan of action, commit it to paper and put it into action as soon as you can. Inaction, failure to plan and address forthcoming challenges have taken down many companies.

I hope this has given you some ideas of what to look at in your company and inspired you to take action sooner rather than later. If things are looking like they are heading south and you can't see a way of improving your situation see a professional sooner rather than later. The small cost of seeing one today will be significantly less than letting the situation get worse or losing your livelihood through inaction.