Avoid the problems of overtrading

You should be aware of the signs of overtrading so you can try to resolve the situation before it becomes unmanageable.

Classic symptoms of overtrading include:

• lack of cashflow
• persistent use of a bank overdraft facility
• loss of supplier support
• excessive borrowing
• high revenue growth but low gross and operating profit margins
• very low inventory turnover ratio
• low levels of capacity utilisation
• inability to meet obligations on a frequent basis
• key financial staff leaving the business

Overtrading can have serious consequences for a business, making it important to be mindful of this risk and take steps to prevent it.

See avoid the problems of overtrading: debts and avoid the problems of overtrading: assets.