Keeping Watch on Financial Affairs

There are numerous reasons for businesses incurring financial difficulties. Directors need to be aware of these so they can ensure appropriate action is taken to prevent the company trading whilst insolvent.

Reasons may include:

 Low operating profits or losses being incurred
 Problems with paying creditors in accordance with the negotiated payment terms
 Problems with meeting loan repayments to banks, financial institutions and other lenders
 Problems with paying income tax installments
 Suppliers refusing to give the company credit
 Legal action being instigated against the company by any supplier for the non-payment of goods or services
 High debtors’ amounts owing above the amount for which the company has budgeted
 High stock or work in progress investments above the amount for which the company has budgeted
 Excessive investment in capital expenditure, especially if it was not budgeted for
 Departure from the budget or cash flow forecast prepared for the business.

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