1 May 2004

Richard Simmons, partner at our Brighton office, recommends setting up an 'early warning system' to spot emerging financial problems.

There is no room for complacency in business.

In order to prevent a financial crisis it's necessary to spot any weaknesses as soon as they arise. That way you can take whatever steps are necessary to prevent them becoming too serious. Anyone running any kind of business should be using the following management practices as an early warning system.

Every company director and owner-manager should:

• have a current written business plan
• review costs and overheads as well as sales
• prepare regular management accounts
• prepare annual projections and cashflow forecasts
• review actual performance regularly against the projections
• prepare and use aged debtors and creditor lists
• meet partners or co-directors regularly to formally review progress
• know how much the business owes and how much it is owed at any given moment in time

And, if you are a sole trader, you should:

• regularly allocate time specifically to understand your financial position

You should be as honest with yourself as possible about employing these practices. If you don't really stick to these disciplines and it makes you feel uncomfortable to admit it, seriously consider seeking professional advice at once. Paying an accountant or licensed insolvency practitioner to do your financial housekeeping could be the wisest move you'll ever make.

Richard Simmons