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Beware of the tsunami of liquidations and bankruptcies after 30th September 2021. What are the warning signs?

The Government furlough scheme ends on 30th September and no indications have been given that it will be extended. Some argue that there is no need to do so if there are no restrictions on businesses operating normally. However, some predict an avalanche of liquidations and bankruptcies.

How is it possible to determine if a business is in financial distress i.e. the business is unable to generate enough revenue or income to meet its financial obligations?

This is usually apparent from reviewing the financial accounts of the business. Listed below are some typical red flags:


  • Lack of management information
  • Communications are poor
  • Lack of a detailed marketing plan
  • Departure of key personnel


  • Decline in operating margins
  • Continuing trade losses
  • Decline in sales volume not attributable to historical cycles
  • A need to give large discounts to keep customers

Ratio analysis

  • Delays in paying trade creditors
  • Delays in collections from trade debtors
  • Liquidity problems i.e. liquidity ratios of less than one


  • Overdue taxes
  • Suppliers remove credit terms and place business on cash on delivery terms
  • Issuing post-dated cheques
  • Dishonoured cheques
  • Special arrangements with selected creditors
  • Judgements/warrants/solicitors letters issued
  • Rounded payments to suppliers not reconcilable to actual invoices


  • Growing levels of stock
  • Shortage of materials
  • High levels of damaged, slow moving, obsolete stock


  • Restrictions in cash flow
  • Loss of working capital
  • Poor relationship with banks and other providers
  • No access to alternative finance
  • Inability to raise further equity capital
  • Using new borrowings to reduce trade creditors

Accounting records and financial reporting

  • Disarray in financial systems and controls
  • Unreconciled bank balances
  • Sales forecasts are overly optimistic and are rarely updated monthly
  • Failure to keep proper books and records
  • Long delays in the preparation of financial statements
  • Lack of adequate cost accounting system
  • Poor operating data


If you recognise one or more of the above in your business or your customer’s business before or after the end of this month, do not delay acting. Timing is critical to success. The moment to take advice is when the above red flags appear.

About the author

Raymond Davidson

Raymond has been specialising in Forensic Accounting and Litigation work for over 30 years, is a Fellow of the Institute of Chartered Accounts in England and Wales and trained by the Academy of Experts to act as a Mediator.



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