De-Risking your business
Every business is different, but by identifying some pinch points in your business and de-risking them, it can help to manage the financial health of your business.
Businesses can do this by:
- Identifying risk areas
- Assessing the likelihood and potential impacts of identified risks
- Developing contingency plans for worst case scenarios
Identifying risk areas for key suppliers
When identifying risk areas for your key suppliers, it is worth considering:
- Are they showing signs of stress?
- Are they showing signs of failing or underperforming?
- Do they have short-term cash flow problems?
- Are they experiencing supply problems of their own?
Assessing the likelihood and potential impacts of identified risks
There are many ways to keep a check on the likelihood of potential risks and the impact of them on your business. Carry out these checks at regular intervals:
- Monitor and audit the financial health of your suppliers, particularly when they are critical to your business.
- Review the contracts you have with the businesses you work with. Are the provisions sufficiently robust to protect your business in the event? For example, in the event of supply failure, are you able to terminate contracts should you need to or renegotiate your terms?
- Are there any challenges which would affect the supply chain performance? You may wish to consider how delays or shortages will impact the ability of your business to perform.
- Does your business have a key supply which is overly reliant on? Should something go wrong have you considered any viable alternatives?
- Compliance. Not being compliant, for example with data protection, is a risk for your business. A review of your eternal policies is important to reduce risk of potential hefty fines for non-compliance.
Things to look out for which may indicate that a company you work with is a risk to your business:
- Delays or mis-deliveries
- Are there any disputes?
- Product quality lowered
- Returning of more items
- Shortfalls in delivery
- Supplier avoidance
- Have there been any changes in behaviours or conducts in the way a company engages with you?
It is worthwhile carrying out credit checks on a regular basis. Often this is run at the start of a business, but it's important to keep track of your suppliers’ credit rating and whether or not it is deteriorating. If it isn't possible for you to deal with that in-house, then there are many external providers who offer the service.
It's also worthwhile reviewing the business’s financial records at Companies House. In particular, look at the accounts, for example:
- Have they been filed late?
- Does a review of the latest account suggest that the financial position of the supplier or the company dealing with has worsened?
Companies House will also show whether an insolvency practitioner has been appointed. It is also worthwhile looking at the London Gazette on a regular basis because this will provide any notices that have been published.
If you have any areas of concerns or questions, please do get in touch and we'd be happy to have an initial chat with you.
About the author:
Monica Kapur is a Director at Isadore Goldman.She is an insolvency specialist with 18 years’ experience advising mainly insolvency practitioners on contentious matters. Her experience includes antecedent transactions, often involving misfeasance claims against directors, advising, and acting in relation to bankruptcies and investigations being undertaken with a view to realising assets and pursuing claims for the benefit of the insolvent estate.Aside from Insolvency Practitioners, Monica also advises company directors regarding their duties where the company is either in or on the verge of an insolvency and also individuals faced with bankruptcy or litigation proposed by a trustee in bankruptcy.
You can also watch Monica on video talking about de-risking your business. See here.