Avoid Business mistakes in a recession

It is vitally important to keep your business moving forward in tough trading times. Check out a few ways to protect it...

Common mistakes

Although no amount of commercial advice can guarantee your business survival in the current economic climate, it is worth avoiding the most common mistakes and protecting your business and personal assets as much as possible.

(1) Poor management accounting - Cash flow problems are the downfall of most businesses and as the recession hardens and directors inevitably have to concentrate more on sales, a very close eye still needs to be kept on the finances otherwise all the extra effort will be in vain.

(2) Cash flow - Easy credit is a thing of the past. Staying within an agreed overdraft limit is of the utmost importance during this recession as the chances of a bank agreeing to an extension of an overdraft limit these days are much reduced. 

(3) Putting personal money into a failing company - You need to face facts about whether your business is going through short-term financial problems or whether it is actually failing. If you do inject funds into the business, as either capital or a loan, you are likely to lose these if the company does become insolvent.

(4)  Watch your fellow directors - If a company fails, all the directors are held responsible.  You should therefore keep an eye on all directors, particularly the financial director.  If you are unhappy about the way the business is being run by your fellow directors, you should say so and your concerns should be minuted.

5) Paying off some creditors - You should not make short term loans to the company to alleviate a cashflow problem.  If a director makes a short term loan to the company which is repaid a month or two later and the company subsequently goes into some form of insolvency, then the Court could order you to payback those funds into the company as under the law,once a company is technically insolvent, it is often unlawful to pay one creditor in preference to another.

(6) Transferring assets or contracts to a new company can result in having to pay back money to the old company unless they were bought by the new company at a fair market price.

(7) Not spending enough time working on the business plan - A business plan shows where the business is going.  It is an ideal way of looking ahead and predicting the successes and shortcomings of your business. Will redundancies or cut backs be necessary based on your resources?  Can you continue offering credit to your customers?