The domino effect

What to do if a big business failure threatens your clients

As the fate of names like Carillion showed a few years ago, and some of the oldest names in the high street have shown more recently have proved, even big businesses can fail. And when they do, they can take small businesses with them.

Suppliers providing goods, companies providing services of all kinds, from security to marketing – and even accountants – can be hit hard when a major customer or client goes under. Carillion’s demise caused hardship for businesses and individual contractors across the construction industry, and the current situation on the high street could have negative effects for an even wider range of businesses, and among them could be your clients.

So, how can you help your clients avoid the domino effect when a big name falls?

1. Look at their exposure 

Do you have clients who work almost exclusively with a small number of customers? They could be at risk if those customers hit problems – or choose to take their business elsewhere. You might want to suggest that they try and broaden their customer base. It can be difficult for small businesses to do so – but a broader base means more stability.

2. Look at their business plan 

Businesses should operate under a robust business plan, recognising the work that will bring them profit, and looking at the risks they face. Contingency planning is part of any overall business plan. What would happen if they lost a key contract or a key customer went to the wall? They need answers now, not when or if it happens.

3. Look at their customers

How healthy are they really? Are your clients overexposed to customers with potential businesses problems? For example, are they making goods that are only offered in traditional bricks and mortar stores – should they be looking at the possibilities of online retailers – or even of selling direct via the internet? The business world is changing fast – a customer who looks sound one year may not have the same golden glow the next. Debt, a contracting market, technological changes - you have the ability to spot the warning signs, and you may want to warn your clients when you start to see them.

But what are those warning signs? As an accountant you will know what to look for – but one of the most important tell-tales may be the tendency for a business to take longer to pay its invoices. Any tendency to delay payments or extends credit terms should be treated as a potential sign of trouble. When Carillion failed, the first indicator of their terminal cash-flow problems was the extension of their payment terms to their suppliers to 120 days, which is double what is generally regarded as acceptable in the construction industry.

You need to keep your client aware of any problems you spot.

4. Look at their cashflow

Cashflow is the lifeblood of any business, and it is the big problem when customers want to pay your clients late. Of course, it means your clients are, in effect, lending to fund their customers’ businesses. It is an expensive way for your clients to operate – and in extreme cases it can mean that they fail when their customers are able to keep in business. But there are dangers - insisting on more stringent terms can exacerbating the flood of cash out of a customer business – accelerating the end.

You may want to discuss ways to support your clients' cashflow, by finding new customers, establishing new payment terms, or finding external funding. Another approach may be to look at Invoice Finance to ensure that your clients can have access to funding even when customers are slow in paying.

What can you do if you do spot trouble ahead?

The brutal facts are that if your client relies on a single customer, they can fail if that customer fails. Having a disaster plan ready if the worst happens is essential.

Look at your clients' commitments and at their available resources. And then, look at what can be done to bring in funds in an emergency.

At Rangewell we may be able to help when your clients run into problems - and help you prepare a rescue package if the worst occurs. Refinance of assets and property can be one solution in a cash crisis - we will work with you to find the solution that is right for your client. We work closely with accountants to help them find the financial solutions their clients need, and we have a team that can provide expert knowledge when you need to create a rescue package or a disaster plan.

We are independent, so not only can we search the entire lending market for the funding that is most suitable, we can work with you to identify the lenders who can offer the most competitive rates, and those who may be the most appropriate for specialist funding. 

What's more, our services free for you to call on as an accountant partner, we make no charge to your clients - and we may be able to pass commission from lenders on to your practice.

It means that you have another valuable service that you can provide for your clients.