Seeing signs of recovery? Work picking up? Beware the overtrading trap!
As the recovery gains traction the problem of overtrading and losing control of your working capital requirements is a particularly tricky one as the illusion of a return to stability may actually prove to be the harbinger of new problems.
After a difficult few years the temptation to take on additional work is hard to resist but this maybe at odds with your company’s working capital availability, capital that is not only needed to pay your trading bills, salaries and other overhead costs. Add to this increased workload and turnover could see your overdraft steadily rising, what if your suppliers will not increase the credit limit on your account?
It is not difficult to see how these symptons could lead to failure if not checked. Past experiences show that emerging from recessions can be a particularly vulnerable time for businesses. Thoughtful planning on how to fund expansion linked to a strategy for controlled growth is essential for a business to profitably expand as the economy recovers.
Not withstanding the financial risks of expansion there is also another capital to be considered – Human Capital – Companies that grow quickly will likely need to recruit new staff to manage the expanding business, with this comes the risk of giving responsibility to unproven staff and a potential for erosion of service, quality and financial control. Recruiting the right staff is as essentail as financial planning!
Manchester East & West
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