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APPOINTMENTS: When the alarm bells tell you it's time to call in the professionals.


Picture the scene. You are the director of a once-thriving SME. In recent months your business's financial position has started to slip - and now alarm bells are starting to ring.

What do you do? And where should you turn for advice?

The answers depend on the size and type of business you are running, and the nature of the problems it faces.

Perhaps purchase costs are outpacing revenues due to currency fluctuations or maybe the business has to crystallise an unexpectedly large pensions deficit on its balance sheet.

Whatever the trigger for the alarm-bells, the important thing is to act, and quickly. As soon as you suspect that your business may be heading into trouble, you should check the position against the two tests for insolvency.

The first is a cash flow test - is there enough cash to meet debts as they become due, not forgetting the wages/salaries that need to be paid. The second is a balance sheet test to establish whether the assets exceed the liabilities, including contingent liabilities.

If your business is simply underper-forming and is not yet in any real danger of insolvency, the best approach may be to engage an experienced turnaround practitioner.

However, the business's financial problems may already have gone too far for this approach. Whilst the warning signs vary, ranging from the breaching of bank covenants to the serving of a winding-up petition you, as a director, must take proactive steps to minimise the risk to your creditors and, aligned with this, the potential for personal liability.

The first step is to engage appropriate external professional advice immediately - including insolvency advice, either legal or accounting or both. Once they are on board, your advisors will guide you through the process of protecting the interests of both creditors and directors. This will doubtless include reviewing financial information to ensure it is accurate and up-to-date as well as short term trading and cash flow forecasts.

All of this information should be discussed and agreed at regular meetings of the directors. If the right quality of management information is not available, then your advisors will help you by supporting your personnel and systems so that meaningful accounts and forecasts can be prepared.

Working with your advisers, the board should also keep large creditors, particularly the business's bankers, informed about any corrective restructuring or disposals. It may also be possible to raise additional working capital, so the sooner your bankers are brought into the picture the more likely it is that they will help support the business through its troubled times.

Financial difficulties can hit any business. For a director, the watchword is to get the right advice fast. There are professionals at hand who can not only save your business, but improve it. If you fail to use them, you may ultimately have to answer to your creditors personally.

Bob Bailey is chairman of R3 Midlands and a partner at national accounting, business and tax advisory group Vantis.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Jul 19, 2007
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