As a family business set up 51 years ago, Hewland Engineering, which supplies high-performance gearboxes for racing cars, has weathered difficult economic times.

Over the years the company, based in Maidenhead, Berkshire, has learnt to recognise warning signs and adapt accordingly.
'There is no doubt that it is exceptionally tough out there now, but we use key performance indicators and carry out frequent business health checks to identify potential problems,' says business co-ordination director Stephen Deane.

'Changes we make today may not be suitable next month so we make sure we are adaptable.'

Stephen, 47, says putting in place regular checks and monitoring the business carefully can help firms to deal with problems at an early stage.

But with the economic downturn showing no sign of ending, experts warn that many businesses could collapse in coming months. In the last quarter, the number of companies going into liquidation rose by 11.6%.

What are the danger signs for a potential insolvency? Catherine Matthews, of national insolvency practitioner Tomlinsons, says these include businesses struggling to pay VAT and PAYE. These are often the first to slip, because Revenue & Customs will not demand payment as quickly as most creditors.

Rearranging payment schedules with creditors and going to the bank for more money are signs a business could be in difficulties, as are falling sales and rising costs.

And the worst thing owners can do is ignore these signs. 'Many owners of small businesses may not realise or admit that there are serious problems until it is too late, yet the sooner they do the easier they are to tackle,' says Matthews.

Duncan Parkes, managing director of Lloyds TSB's business support unit, says it has seen an increase in companies in difficulties in recent months but believes bank staff have a key role to play.

'Business owners tend to be optimistic, but our role is to be challenging where necessary as well as supportive,' he says. 'We also have a wider overall knowledge of the economic environment.'

It has worked for Hewland. Stephen says: 'Every three months we go through the business with HSBC We also speak regularly about business issues. I feel secure that they would alert us to problems we were not aware of and help with existing issues.'

It may also be worth contacting an insolvency practitioner for advice. Most offer free consultations to help businesses assess whether they can survive.

The positive news is that most firms will make it through the downturn, says Parkes. 'Though more will fail in coming months, the majority will make it through in leaner, better, shape,' he says.



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