It is sound business practice to maintain a regular check on the company’s ability to meet its commitments. This should be done by reviewing management information and profit and cashflow projections on a regular basis.
As part of this process of regular review managers should look out for certain warning signs and take steps immediately to address both the problem itself and its underlying causes.
The following is a list of major problem indicators.
1. Inadequate credit control
Putting the following procedures in place may solve this.
2. Substantial increases in overheads not being matched by increases in turnover.
3. Excessive reliance on one customer or a small customer base. This is true also of suppliers.
4. Declining liquidity - ability of business to pay its debts as they fall due.
5. Decline in stock turnover ratios.
6. Excessive reliance on loan finance.
Businesses will differ on the level of management information they require to run their business. In designing and implementing an accounting system, the essential requirement must be to determine what the companys information needs are, the nature of its business and its cash commitments. In all cases the system should be able to alert management to real or potential financial problems to enable them to taken action in good time.
If you need help keeping your accounting records in shape or with preparing periodical management accounts, forecasts and budgets to use as a basis for the sound financial management of your business, OSK can help.
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