The word is enough to send jitters through your spine.
Imagine feeling the same after you’ve given your all for a company. Everyone starting a business wants it to be a success and rake in big money.
Running a business is no mean feat. You have to manage a plethora of aspects to ensure that it remains on its feet. Given the uncertainty caused by the COVID-19 pandemic, catering to all these aspects has become a tough nut to crack.
If you have started feeling the heat, it is imperative to understand the difference between a temporary decline and a terminal decline. If it’s the former, you will have to analyze and rectify any issues and wait for things to improve gradually.
If the decline is permanent, you may not have a lot of time to ponder. It is time for you to act.
This article lists ten visible signs of company insolvency in Singapore to help you figure out the warning signals and act on them before you are too late.
What is insolvency?
Insolvency is a financial condition where an organization is unable to meet its financial obligations on due dates.
Such happenings, if recurring, can lead to insolvency proceedings. In such a scenario, the authorities can liquidate the company’s assets to clear creditors’ dues. If the situation worsens, the business owner gets an option to either opt for restructuring or file for bankruptcy.
The year 2020 has been a harsh one for businesses, especially MSMEs(Micro, Small & Medium Enterprises). The stats prove the same. The year 2020 saw a total of 2,833 bankruptcy applications in Singapore. It stands at 779 in the first three months of 2021, and we fear the numbers can worsen as the year progresses.
Causes of insolvency
Here are the significant causes of business insolvency –
Lack of robust long-term business planning
A business needs robust planning, which includes a rough estimate of incomes and expenses. If you do not have a clear roadmap, it can result in a haphazard existence.
Inability to manage your cash flow
Inability to manage funds happens to most businesses. If you do not address it, your organization can soon fall into a cash flow crisis, which can have grave repercussions on its existence.
Higher debt ratio leading to exorbitant interest outflow
When you rely heavily on debt, a period of below-average performance can put a lot of pressure on your business. It can also lead to severe vulnerabilities leading to insolvency.
Risky business strategy or stringent competition
Your competition is an ever-growing one. You cannot ignore it, and if you do, you are preparing for doom. Thinking too highly of oneself has destroyed countries, let alone businesses.
Why is it crucial to gauge early warning insolvency signals?
When your business is on a downward spiral, a minor tweak can help you manage the slide if you act early. But if you are reluctant and continue your usual route, your situation can soon worsen. On the other hand, if you are proactive and behave as the situation demands, you can often turn the tide and protect your organization from dismantling.
10 early warning signs of company insolvency
Not many things come with guaranteed success in our day-to-day lives. Especially when you are running an organization without properly managing these warning signs, the chances of failure are higher than success.
It is imperative to understand that instability is a part of business, but you will have to keep your eyes open to gauge if there is more than what meets the eyes.
The first step towards getting back to normalcy is acknowledging that something is wrong. Here are ten vital signs that can tell you that it is time to pull your sleeves up and look for solutions to pull your business out of a probable insolvency position –
Lack of liquidity in cash flow
Any business suffering from illiquid cash flow will have a hard time surviving, let alone thriving. The paucity of funds can lead to you struggling to meet emergency outflows and even falling into deeper trouble if it persists for a period.
Non-existent cash reserves and difficulty in securing funding
A business needs funds to scale. You can either generate funds from your operations or request financial lenders to sanction your funding. If you are not getting a nod even after your best attempts, there can be something wrong with the way you manage your business.
Banks and other lenders are very cautious while sanctioning funds to businesses. So they run a thorough check before deciding if the organization would be able to repay.
Inability to clear crucial payments in time
If your business is struggling, this would be the most apparent situation to pop up. Irrespective of why your business is constantly battling to meet deadlines (both internal and external), it is a major red flag.
Even when your business gets an extended deadline, it has to try hard to clear its debts. Most of the time, lack of funds would be the reason, but if your business has something else to blame, consider finding a way to get it right.
A business has to report to its stakeholders periodically. There has to be continual communication between the higher management and the workforce. If it is missing in your case, it can be a warning signal for an upcoming calamity. You will have to undertake due diligence and figure out the reason behind such reluctance.
Switching auditors continually
Auditors are the safe keepers for a business. They ensure that the core functions operate as intended. Switching auditors in Singapore is not a big deal, but it can be a warning signal if a company is doing it for no apparent reason.
There are times when the owners don’t pay enough heed to the business’ auditing aspect, but if your organization is on a downward spiral, hiring an external team and running a thorough audit will help you find the shortcomings and whether the company is near insolvency.
High employee attrition rate
A 2018 Retention Report from the Work Institute states that 25% of employees leave their job. It further says that 33% of it is because of lack of growth and unsupportive management.
Employees form the core of your business, and you know that well. Finding the right ones is a tough nut to crack. But once you do, holding on to them and ensuring an amenable relationship is tougher. If your employees, especially the key ones, leave, it won’t bode well for your goals. If the attrition ratio is high, it would be challenging for you to survive.
Are you a business that is continually over-promising or under-delivering? If yes, it is imperative to understand that empty promises will drive growth for a short span. Once people realize the truth, they will start alienating you. Instead of losing your valuable partners, you need to begin promising stuff that you can deliver. It would enable you to better cater to your customer needs.
Low customer retention
The 2019 CEE Report states that Singapore Airlines is the country’s leading brand when it comes to an impeccable customer experience. It is no surprise that they are performing so well and continue to touch new heights.
Not many businesses resort to one-off sales as their primary business model. So unless you are one of them, repeat customers are proof that you are providing value. If you realize that your business has a low customer retention ratio, it is time for a revamp.
Bad customer service reputation
It goes without saying that your customer experience today starts with you selling a product or a service. If they come back to you with a query or feedback, it is imperative for you to pay heed to it and make the necessary adjustments to ensure satisfaction. Leaving it unattended or unsolved will result in your business suffering in the long run.
Failure in ascertaining issues
Businesses must be circumspect and have a clear understanding of what is going on around them. One of the reasons why organizations fail is ignoring red flags and marching ahead with their plans. It is crucial to take pauses and ascertain their performance regularly to ensure a smooth business flow.
Any business which is not proactive and has performance issues allows its competition to take the upper hand. It is imperative for you to gauge the seriousness of the situation and act accordingly.
It is time for you to sit up and act
If you are experiencing signs of probable insolvency for your business, it is time for you to take the back seat and analyze your situation better. You will require a foolproof plan to ensure you pull your company out of the rut.
The basics include cutting down on expenses, looking to stabilize your cash flow, and retrenching staff. We understand that you are feeling terrible, but it is the right time to pull back things and get everything sorted.
Contact Intime Accounting if you need professional assistance in revamping your business.