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FINANCE ANALYZE THE 4-STAGE CHRONOLOGY OF A COMPANY THAT GOES OUT OF BUSINESS WILSON COLE FOUNDER & CEO OF ADAMS, EVENS, & ROSS 800-452-5286 EXT 6578 [email protected] | www.aercollections.com I had a mid-size staffing firm client of mine called me last month with a very good question. His company just had a client who owed about $8,000.00 go out of business before paying. The question to me was, “How do I know if a company is about to go out of business?” Let me preface my response with a few assumptions. This answer applies primarily to small or mid-sized businesses rather than to large, publicly-traded companies. If they are large companies and have talented CFOs that understand cash flow, they can hide a great number of problems until they finally implode. (Recall World Com and Enron!) These are the excep- tions, though. Most companies in trouble send out warning signs long before they close their doors. ANALYZE THE FOLLOWING 4-STAGE CHRONOLOGY OF A COMPANY THAT GOES OUT OF BUSINESS STAGE ONE: Client starts to have cash flow issues and stretch their primary bills out 10 to 14 days past-due. They will pay second and third tier creditors at 30 to 45 days past-due. Staffing firms and recruitment firms are almost always treated as 3rd tier debt. YOUR RESPONSE: Keep a close eye on the client. Make a few phone calls and get a commit- ment on a specific date of payment. STAGE TWO: The debtor is 30 days past-due with main creditors and 60 to 90 days on third tier creditors. You will start to hear rumors and you may start to see a few collections show up on the business credit reports. The debtor may also bounce checks to you and claim the bank made a mistake. YOUR RESPONSE: If you have a good relationship with the client, ask them to sign a personal guarantee. Have them also sign a promissory note with a firm commitment on when and how you get paid. If the debtor refuses you may want to turn the account over for collections with whomever you use. 30 WWW.RSSM.BIZ | WWW.RSSM.BIZ