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Most common causes of
business failure –
Management Accounts

As I work mainly with distressed businesses, I'm often asked ‘what’s the most common problem?’. In my experience a common factor in nearly all businesses in distress is a lack of understanding of the financial performance of the business, which is derived from the Management Accounts. Here are some of my observations on common mistakes that can be easily rectified.

 

     Poor Key Performance Indicators (KPIs)

     Balance sheet is produced but ignored

     P&L produced, but without a balance
        sheet

     Management accounts are read,
        but not used

     Management accounts are only
        produced for the bank

     No monthly management accounts,
        only year end statutory accounts

Read On ...

If any of the above ring true for you, then please get some help. These issues have a habit of developing into cash flow problems so don’t leave it too late.

Stephen Moon, Director, Venturn Ltd

Case Study : Medical Gas

Venturn took on a new client in December 2009 which supplies medical gas to parts of the NHS. The business was fundamentally sound, but it had grown rapidly to a 30% market share. Due to a delay in the rollout of a major project, it now had a cash flow problem

Venturn's Approach : The problem was simple, we had no cash for the Christmas payroll. Our approach was to rapidly gain consensus on the possible options and get moving quickly. We didn't have time for each stakeholder to act in isolation, we needed to get all parties talking quickly.

Objectivity : There were multiple stakeholders - the VC fund, the trading company, suppliers, shareholders, the HSBC workout team, HSBC invoice finance, NHS trusts, and the employees who were looking forward to Christmas !

Time : Frank discussions and some intensive negotiations created a variety of plans all of which were initially pursued. Over time, plan A emerged as the winner and £1.5m of new money was raised in February.

Experience : The journey wasn't easy, but keeping everyone on track and ensuring that the value in the business was protected created the best result for all stakeholders.