Insurance |
|
Your Money > Insurance Articles > How to tell...
|
|
By Richard Evans
The economic crisis engulfing the world has already claimed a number of well known British companies, including Woolworths, Whittards, Wedgewood, MFI, and most recently, LDV. A number of other household names, including Jaguar, have also hit the headlines after requesting emergency funding from the government to prevent them from going under. Latest figures released by the government show that almost 5,000 companies went bust in the first three months this year - a rise of 56% on last year. From January to March, a total of 29,774 people also declared themselves insolvent. Experts warn that this figure could quadruple to 125,000 before the year ends. Trying to work out which businesses may be next to go makes for a rather grim spectator sport - but it can be much more serious if the company in question is your employer, a shop you have ordered something from or a customer or supplier of your business. In each case, a business failure could have significant consequences. Employees face the loss of income, possibly at very short notice, and are likely to get a smaller redundancy payout than they would otherwise receive. Their pension could also be at risk, while they may find it difficult or impossible to find another job with the same salary or seniority. If you have ordered goods (particularly expensive purchases such as kitchens or jewellery, for example) from a shop that goes bust before delivering them, you face losing some or all of your money, or at the very least delay and anxiety. Healthy businesses, meanwhile, can be seriously affected by the failure of firms that they depend on, such as the wholesalers that supply retail chains with their goods. One example is Zavvi, the music chain, which got into difficulties after Woolworths stopped suppying CDs because of its own problems. People who run their own small businesses or act as subcontractors can also be at risk. They will often give their customers credit by invoicing for goods or services rather than insisting on payment up front. If their customer goes broke in the meantime, they risk never getting paid. So existing (or potential) employees, customers and suppliers clearly have an interest in being able to spot companies in danger of going bust. But what are the signs to look for? We asked Alan Tomlinson of Tomlinsons, an insolvency practitioner with many years' experience of failed companies, for some pointers. There is no magic formula, he said, but rather a collection of indicators. What to look out for as an employee 1. A decline in the level of work going through the factory or workshop, or a drastic decline in level of sales 2. Anxiety on part of staff, or increased levels of stress exhibited by proprietors 3. 'Unusual' meetings, or cancellation of company parties and social events 4. Proprietor telling receptionists to tell callers that they are not in 5. Employees will often become aware that the employer is not paying creditors in a timely manner or is taking extended credit 6. Salary cuts or redundancies - especially if there are several rounds within a short space of time 7. Visits from bailiffs 8. The disappearance of water coolers and pot plants from around the office What you can do 1. Prepare the groundwork for finding another job - contact employment agencies, update your CV, exploit your professional and social networks. 2. If you are in a final salary pension scheme, consider moving the "transfer value" into a private pension. There are many factors to consider before you do this and you should take specialist advice. Money in a defined benefit pension scheme does not face the same risk, as it is a ringfenced fund run by an outside pension manager. What to look out for as a customer 1. Inability on the part of shop or other supplier to fulfil orders without reasonable excuse 2. Delays in supply 3. Requests for early payment 4. Running down of stock What you can do 1. Individuals should pay by credit card - for sums between £100 and £30,000, the credit card company is required by law to reimburse you if the shop goes under before supplying your goods 2. If your goods are identifiable, you may be able to visit the shop or warehouse and take possession - you have "retention of title", provided that certain conditions are met, but this can be more difficult to achieve in practice than in theory. What to look out for as a supplier 1. Difficulty in getting your customer to pay you; delays in settlement requests for "time to pay" arrangements 2. Excuses - Director is away or in meetings with accountants or banks 3. You are told the cheque is in the post - when it isn't 4. Customer is paying for current supplies while older invoices remain outstanding 5. Word of mouth in the trade is often the best indicator 6. County court judgments 7. Being asked to invoice a new company being asked to take stock back, or customer refusing delivery 8. Withdrawal of trade insurance cover What you can do 1. Insist on part or full payment in advance or on delivery 2. Don't supply more goods or services until outstanding invoices are settled 3. Contact the press What to look for in a company's accounts 1. More current liabilities than assets 2. Balance sheet supported by intangible assets such as goodwill, leasehold improvements 3. Increasing trade creditors and /or Crown debt 4. Threats by the registrar to remove the company from the register. You will see this from a company search or from other trade credit organisations, such as Experian. Useful links: |
What to look for
| ||||||||||||||||