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Top 10 warning signs your recruitment business is in trouble

In the day-to-day running of a business, it’s sometimes easy to miss signs that things are slipping

Spot the warning signs early enough and you’ll have a greater chance of turning your company around. The good news is success is largely on your side as recruitment can be quite straightforward in terms of the business (e.g. you don’t need stock to trade with). It also encompasses strong economic value.

However, whether you recruit for all sectors or specialize in a niche market, there will always be issues that arise and dealing with these at the earliest opportunity can only work in your favor.

10 Warning signs that directors need to know

1. You or the other directors are pointing the blame at creditors, the bank, advisors, bookkeepers, accountants and employees for your company’s problems. Ultimately its failure or success is your responsibility.

2. Instead of focusing on improving the business and planning for the future, you are ‘fire-fighting’. Dealing with angry customers or creditors is becoming more frequent.

3. You handle only one financial issue or deal with only one creditor, ignoring others.

4. There is insufficient business planning and structure in place, e.g. rare meetings with the board and general team.

5. There is poor account information, with insufficient records of profit and loss, cash flow and balance sheets.

6. The company cannot pay VAT or PAYE to HMRC when payments fall due. Deadlines may have already been missed.

7. You or other directors are taking large wages from the company.

8. You are in the mindset of thinking all you need is just one more customer or contract to stop the cashflow issues. That is a problem. It’s important to not rely on the ‘what ifs’.

9. If the company is struggling and you continue to withdraw dividends at the same rate as when the company was in profit, your directors’ current account can become a tax liability and you could end up owing a huge amount of debt to HMRC. This is known as an overdrawn directors’ loan account (ODLA).

10. ‘Change’ in the company is an unfamiliar term. Successful businesses must evolve in order to adapt to changing consumer habits. Freshen up marketing campaigns and review operational software to stay on top of competitors.

One of the biggest reasons for a company failing is the lack of financial management and inadequate cash flow planning. Don’t let this happen to your own company by ensuring you use a daily cash flow to keep track of all costs.

What should you do if your recruitment company is in trouble?

Act now before it’s too late. Depending on the level of financial problems, there are several cheaper and alternative options to administration and liquidation. You may be able to arrange an informal deal with creditors to pay back the full debt over time and avoid any legal or court proceedings.

If that can’t be agreed on, then a legally binding Company Voluntary Arrangement (CVA) can write off some of the debt as well as be an effective tool for struggling companies. A CVA allows you to stay in control and protect your business against aggressive creditors.

Keith Steven of KSA Group Ltd has been rescuing and turning around companies since 1994; he has worked for insolvency firms, turnaround funds and venture capital investors. Keith formed his own turnaround practice, KSA Group Ltd in 2001, and he is acknowledged as an expert in the delivery of CVAs for SME companies faced with financial difficulties. He is the author of the site www.companyrescue.co.uk. You can follow Keith on Google+.

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