Stress tests conducted on companies filing their accounts in April 2012 showed a marked deterioration in financial stability compared with Q1 results according to vision-net.ie. 31,070 businesses were subjected to their stress test in Q1. Of these 15,485, (50%) were deemed to be high risk and showing signs of business failure. 17% were deemed to be medium risk. Of the 11,156 companies they stress tested in April, 55% were deemed to be at high risk of collapse, 14% were deemed medium risk and 31% were in the low risk category.
The above highlights the need for businesses to have their key financial information absolutely up to date and their need for updated action plans to deal with the difficult economic environment to prevent business failure. It also highlights the need for very careful monitoring of credit to customers.
What else can be done to reduce the number of companies failing?

The ESB Networks Domestic Micro generation Incentive scheme for wind energy was introduced on 1st March 2009 as an interim incentive to run for 3 years until the Government established and implemented a National strategy for Micro generation. The 3 year term ended on 29th February 2012.
This meant that the free import/export meter and the 10c top up will no longer be available to customers who have not completed their installations by that date. This is inconsistent with stated Government policy of creating jobs in renewable energy industries and seeking to make Ireland less dependent on imported fossil fuels.

Irish businesses who are not clients of Enterprise Ireland, IDA Ireland or County Enterprise Boards have no state agency looking after their interest or doing anything to ensure they can survive this recession. In total these businesses employ hundreds of thousands of people and their business is primarily serving the domestic economy. Despite being critical components of their local economy and giving significant employment there is no state mechanism to ensure they are doing everything necessary to get through this recession. A relatively small investment in mentoring/business survival strategy would pay massive dividends for the state in saving jobs & businesses.

The UK’s five biggest banks have launched a mentoring scheme for small and medium-sized enterprises (SMEs).

It is hoped the scheme will bring banks and businesses closer together and make firms more likely to succeed in raising finance.

The idea is to offer firms more support on issues such as finance, marketing and HR.

Such a scheme if properly implemented in Ireland could have major beneficial impacts and a similar initiative is badly needed to raise the level of management practice in many SME’s in Ireland.

In the month of February 2011 153 Irish companies went bust, equating to five companies every single day according to InsolvencyJournal.ie.  This represents a 59% increase on the January figures and is the 2nd highest monthly figure ever recorded.    Sectors such as construction, retail & hospitality were the worst affected.    Whilst the names of some high profile companies closures are often highlighted the losses (business, livelihood & personal) suffered by business owners and their families are rarely fully recognised.   Bank loans secured by personal guarantees normally cannot be readily unwound.  The onus and obligation for business owners to have up to date financial information to enable them manage their business & take rapid corrective action is critical.  This should enable them avoid charges of reckless trading or trading whilst insolvent both of which carry risks of being held personally liable for their company’s debts.

Stubbs Gazette has said there has been a 17% increase in Revenue Commissioner’s bankruptcy debt actions during the first 6 weeks of 2011 compared to the same period last year.  In the High Court the Revenue Commissioners have become one of the biggest bankruptcy petitioners. The Revenue Commissioners are currently involved in 37 cases against people who refuse to pay their outstanding tax bills. Ireland’s bankruptcy figures are extraordinarily low compared to Britain where 79,000 people were made bankrupt last year.   Expect more aggressive action from the Revenue in 2011.

The first thing a new government needs to do when it gets into office is tackle the rates costs for business and get these massively reduced.   Small businesses are carrying the costs of local government bodies and cannot afford these charges for which no benefit is derived.  Similarly the new goverenment needs to tackle the high cost of electricity and waste disposal costs.  All businesses have reduced their internal costs.  The new government now needs to tackle the costs they control.

All business owners should be fully aware of the supports available from State agencies.   If you are starting a business, expanding a business, moving into new markets, doing R&D or increasing employment it is essential to be aware of the supports available from County & City Enterprise Boards or from Enterprise Ireland for larger companies.   For larger qualifying business involved in manufacturing or internationally traded services and who are experiencing funding difficulties, financial assistance may be available under the Enterprise Stabilisation Fund. 
The funding & supports include a range of grants, loans, incentives, mentoring, graduate placement programmes etc.   The critical issue is to apply in time so as to maximise your chances of getting support.   For a full report on the available assistance see our resources page.

Most organiations have done quite a lot of cost reductions – but have they cut the correct costs?   Have they invested any of the cost savings in better marketing, product/service development or getting more customers and serving these better?  Do they know the exact product costs and the costs and how these costs compare with competitors?  Do they know the marginal costs of orders where they are offered some low priced work? If they have an up to date accurate budget they can calculate the breakeven point, and the margin available from any extra low-priced work available.  Cost reduction and attainment of the lowest unit cost is an imperative but cost reduction must also be a building block to a better business.

1. Budgets, executed correctly, can be a vital tool in running any business big or small.

2. Failure to plan equates to planning to fail. Plans without properly full financial budgets & cash flows are worthless.

3. Market dynamics, customer demand, competitors actions, exchange rates, costs etc are constantly changing. A budget can measure the effect these will have on your profits & cash flow?

4. A good budget is not just a spending plan; it’s a communication tool. Done properly, a budget can focus your staff to work towards overall company goals.

5. A budget helps you prepare for emergencies or large or unanticipated costs or drop in sales that might otherwise knock
you out financially.

6. A budget reveals areas where you’re spending too much money so you can refocus on your most important goals.

7. Done properly a budget can create extra money for you to do use on things that matter to your business

8. A budget helps you to prioritise the most important issues in your business.

9. A budget lets you control your money instead of your money controlling you.

10. A budget for budget working capital budget can, free up spare cash so you can use your cash to reinvest in the business without borrowing more.