Jon Munnery, of UK Liquidators, explains why it is paramount for company directors to keep your finger on the pulse.
The British furniture industry is on fragile ground as economic conditions are stubbornly tough, stunting consumer spending and investor appetite. With high inflation and rising costs becoming commonplace, more furniture businesses are seeing margins squeezed and growth slow down to a snail’s pace, a universal trend visible across key UK industries. As trading challenges grow, business owners must keep their finger on the pulse to maintain financial health, writes Jon Munnery of UK Liquidators.
An unrestricted view of financial health
While the definition of success is unique to each business, the definition of solvent is clear-cut and therefore can be easily measured at any time. The balance sheet and cash flow tests for insolvency are basic tools that can provide a window into a business’s financial health.
Balance sheet test – If company liabilities outweigh company assets and no upcoming business or investment activity is likely to strengthen the company’s asset position, this may inform future strategy. You may actively plan your next steps to strengthen the value of company assets against liabilities on the balance sheet and safeguard against the risk of insolvency.
Cash flow test – If the rate of cash leaving the business outpaces the rate of cash entering the business, this could give rise to a cash flow shortage. With the cost of materials rising and little influx in the way of income, any sign of cash flow strain must be investigated and resolved.
This may take the form of a supply chain refresh or seeking professional advice on performance improvement.
The growing risk of insolvency
The road to insolvency is mostly gradual, so keep your finger on the pulse to track signs of deteriorating financial health. This may start with missing payment runs due to insufficient funds, issuing late payments to suppliers and maintaining a consistently low inventory. However, without intervention, creditor pressure can escalate into severe legal action, such as a winding up petition issued by HMRC to recover outstanding tax liabilities.
According to a recent insolvency digest,  46 furnishing businesses entered liquidation or administration, for which the creditors are expected to suffer a staggering combined shortfall of £49.4 million. The casualties can be attributed to a range of pressures including harsh trading conditions deterring investment, the residual effects of the pandemic and the cost of living crisis.
A helping hand
A helping hand can vary from professional insolvency guidance to strategic restructuring advice. If your furniture business is viable or has the potential to be profitable, restructuring support can breathe vitality into the business. Through structural reforms and targeted streamlining, restructuring can transform overhead-heavy businesses into lean entities, which is crucial to survival, particularly during low trade periods.
Efficiency check – A review of company efficiencies can help identify wastage, divert funds to areas most in need, restore cash flow and boost working capital. Corporate simplification can reduce unnecessary complexity to make cash go further. This may involve dissolving a parent company or consolidating sister companies to reduce operating costs, tax liabilities and reporting responsibilities.
Debts and credit control – If the foundations of the company are weak due to customer and supplier debts, this may signal issues that are deeper rooted with credit control and debt collection. Invest in due diligence and utilise professional debt collection services to minimise bad debt risk.
Supply chain refresh – As supply chains see costs rise due to tariffs, high inflation and rising energy prices, the effects of this will likely cascade down to customers. An occasional supply chain refresh is necessary to keep operating costs competitive and affordable.
Diversification – As consumer spending habits change and demand shifts, diversification is no longer optional. Diversification spreads risks and reduces reliance on core income streams by establishing supplementary income streams. As you expand service lines, this may provide a host of partnership opportunities with other suppliers.
Digital investment – The furniture industry and key players within it are harnessing the power of digital technology, including generative AI. This can support diversification efforts and truly futureproof your business.
As customer experiences evolve, experiment with the capabilities of new technologies to redefine your customer journey and remain relevant. Woolroom dives into how they leveraged AI to increase operational efficiency, and the Sofa Club share their journey to becoming a trusted voice in the digital interiors space.
Futureproofing for tomorrow
Adopting the proactive approach, opposed to reactive, can make for a financially resilient business, which is a growing challenge as economic conditions threaten basic survival. Keep your finger on the pulse to weed out threats before they hamper growth and retain focus on futureproofing to support your long-term vision. From strategically investing to supercharge your digital capabilities to upgrading due diligence software to keep bad debts at bay, building a roadmap to the future and keeping your finger on the pulse is key to longevity.
