Initial External Administrators Reports by Causes of Failure, Annual Percentage graph
The above graph indicates the top 3 nominated causes of financial failure recorded for businesses currently are:
1. Inadequate cash flow or high cash use (43.7%)
2. Poor strategic management of business (42.1%)
3. Trading Losses (33.9%)
Further to the actual causes of financial failure, there are indicators in which entities should be aware of. SV Partners identifies the warning signs of insolvency as the following:
1. Continuing losses
2. Overdue taxes
3. Poor relationships with the banks and the inability to borrow further funds
4. No access to alternative finance
5. Inability to raise further equity
6. Suppliers stopping accounts, changing to cash on delivery or demanding special payment arrangements before resuming supply
7. Creditors remaining unpaid outside normal or industry trading terms
8. Reverting to using post-dated cheques to continue trading
9. Dishonoured cheques
10. Highly leveraged assets
11. Banks requesting additional security
12. Legal letters of demand, summons, judgements, and warrants issued to recover outstanding debts
13. Inability to produce accurate financial information
14. Lack of control of business