Over-trading is one of the leading causes of failure for otherwise strong and profitable businesses, especially in the first five years of trading. Over-trading arises when a business underestimates the amount of working capital it needs to keep trading. If you run a business that works on a credit basis, and your clients and other debtors are slow to repay you, then you may find that you don’t have enough cash available to meet short term capital demands.
When a business runs out of working capital, creditors such as banks and suppliers can no longer be paid, and the situation can quickly spiral out of control. Given the current financial climate, efficient management of working capital has never been more crucial, particularly for small and medium sized businesses that find it hard to obtain long extensions on their credit agreements, and may not be able to afford expensive credit management services.
So Pay close attention to your working capital reserves, and make sure that you keep enough cash available to meet all of your short term needs. And just as importantly, look closely at your credit management facility, and make sure that your debtors pay promptly. For more help and advice, please contact our dedicated team of accountants.
Don’t forget that Harnett Accountants Twickenham offer a free one hour, no-obligation consultation for all clients and you can follow us on Twitter, Facebook and Google+. Additionally, you can keep reading our daily blogs.
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