The Warning Signs of Business Failure

The Building Industry Credit Bureau (BICB) forecasts around 1,350 insolvencies in the construction sector for 2022.  This is a sobering number, and a reminder for all credit professionals to remain alert to the warning signs of failure, no matter what industry they trade in.

So, which are the main areas within a business that can display signs of weakness or distress and lead to insolvency?

  1. Finance & administration
  2. Operations
  3. Sales & Marketing

All businesses must be reasonably strong in each of these three areas, and not fatally weak in any one.  In other words, a business may be strong in its sales and marketing and its operational management, but weak in its finance and administration.  This is a business that is susceptible to failure.   Alternatively, the business may be strong in its finance and administration and its operations, but is weak in its sales and marketing, then this business is also at risk of failure.

Construction Business Faliure

The primary reason for business failure in most industries is a lack of financial management.  Poor cash flow and inadequate working capital, often compounded by too much debt (or over-gearing) is evident in most business failures. 

Of course there are other reasons too, such as:

With the end of the 2022 financial year fast approaching, it is a good time to review your non-performing debtors and consider which of those should be escalated to debt recovery.

If we can assist with any aspect of your credit risk management, please call AMPAC on 1300 426 722 or email us at sales@4ampac.com.au.

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