Viking: Lessons to be learned

3 May 2002




Viking: Lessons to be learned

THE recent financial collapse of Viking Cereals highlights the need for a satisfactory and reliable market for farm produce.

Nick Kidd, client service director at chartered accountant Grant Thorton, believes that while the full reasons for Vikings demise are yet to be established, such a collapse will often leave farmers as unsecured creditors – potentially putting farm businesses in jeopardy.

"The concept of a bulk commodity leaving the farm with payment due several weeks after collection is almost totally reliant on trust, but inescapably connected with risk. Farming may be unique in this respect because very few other businesses would expose themselves to risk in this way," he says.

Mr Kidd believes it is well worth taking note of any warning signs of future failure (see panel).

"Although the list is by no means conclusive, by keeping an eye on the numerous factors that may indicate failure – and acting on them as necessary – farmers can reduce the risk of bad debt. Remember that no single factor should be viewed in isolation, but rather as part of an overall picture.

"Its most important to ask and pry all the time with a view to getting as much information as possible. This is not an unreasonable request in todays trading climate.

"Business life dictates that there will always be risks. Anyone trading grain must know the dangers and be happy that the potential benefit outweighs the level of risk, he warns.

"In a market where every tonne counts, the aim must always be to reduce the risk of a bad debt at every opportunity. By making use of all the information available about a company and trading in limited amounts of grain at any one time, this should not be beyond the realms of possibility." &#42

WARNING SIGNS

&#8226 Obtain copies of company accounts for information about financial position, share capital and asset base.

&#8226 Establish nature of the trading concern and its legal entity/track record.

&#8226 Identify with whom you are trading, and identify contract terms and conditions.

&#8226 Note late filing of accounts and/or changes in the accounting period.

&#8226 Identify individuals behind the company concerned.

&#8226 Changes in company name and registered office – stationery must carry the relevant registered number.

&#8226 Establish assets, liabilities and sales trends. Look for security obtained by lenders on assets, and watch for build-up of hardcore debt.

&#8226 Note continued delays when paying debts. Lump sum or on account payments may be a sign of financial pressure.

&#8226 Watch for business activities being transferred to associated companies.

&#8226 Seek information from trade contacts. Examine possibility of credit insurance.

&#8226 Note high staff turnover particularly at senior management level.

&#8226 Watch for rapid expansion, an unexplained increase in turnover or involvement in new areas outside the traditional core business.

WARNINGSIGNS

&#8226 Obtain copies of company accounts for information about financial position, share capital and asset base.

&#8226 Establish nature of the trading concern and its legal entity/track record.

&#8226 Identify with whom you are trading, and identify contract terms and conditions.

&#8226 Note late filing of accounts and/or changes in the accounting period.

&#8226 Identify individuals behind the company concerned.

&#8226 Changes in company name and registered office – stationery must carry the relevant registered number.

&#8226 Establish assets, liabilities and sales trends. Look for security obtained by lenders on assets, and watch for build-up of hardcore debt.

&#8226 Note continued delays when paying debts. Lump sum or on account payments may be a sign of financial pressure.

&#8226 Watch for business activities being transferred to associated companies.

&#8226 Seek information from trade contacts. Examine possibility of credit insurance.

&#8226 Note high staff turnover particularly at senior management level.

&#8226 Watch for rapid expansion, an unexplained increase in turnover or involvement in new areas outside the traditional core business.

Viking Cereals:Could early warning signs have been spotted.


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