Avoid the problems of overtrading

Introduction

Overtrading is an imbalance between the work that a business takes on and its capacity to do the work.

It happens when a business takes on work, but does not have enough current assets, or working capital, to meet the resulting demands.

This is particularly common in young, rapidly expanding businesses. It can be extremely serious, even fatal to an organisation, so it's worth taking time to understand how to prevent it happening to your business.

This guide explains what overtrading is, how it can occur and how to avoid it.

Subjects covered in this guide

• Introduction
• What is overtrading?
• Matching sales and production cycles
• Assessing your cash needs: assets and liabilities
• Assessing your cash needs: creditors and debtors
• Avoid the problems of overtrading: debts
• Avoid the problems of overtrading: assets
• An example of overtrading
• An example of avoiding overtrading
• Here's how I avoided the pitfalls of overtrading

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