If your company is struggling financially then it could be insolvent. This means that it cannot pay its debts as and when they are due. A company can be cash flow insolvent i.e. does not have the necessary funds to pay bills, or balance sheet insolvent i.e. its liabilities are greater than its assets. Does any of this sound familiar? These are just a few of the main signs of company insolvency to look out for:
You’ve Reached Maximum Borrowing Limits
If you’ve reached the limit of your bank overdraft and are no longer able to take out loans without personal guarantees attached, then you could be approaching company insolvency. You might be struggling to secure short-term loans, and you may find that suppliers are starting to refuse you credit. This is unsustainable and a key indicator that the business is heading towards insolvency, or has already become an insolvent business.
You’re Receiving Demands For Payment
Increasing pressure from creditors is another major symptom of company insolvency. Perhaps HMRC are chasing you for payment, or maybe you’re receiving threats of legal action against the company. It’s particularly important to look out for statutory demands. These are often followed by winding up petitions, which if approved, could result in the business being forced to close via compulsory liquidation.
You’re Struggling To Pay Staff Wages
When finances are tight, it’s common for directors to forgo their salary for a while in the hope that the situation will improve for the next month’s pay packet. However, unfortunately, this is rarely the case. If the situation escalates to a point where you’re struggling to afford to pay employees wages, this is a definite indication of company insolvency.
You Lack Financial Information
The importance of maintaining accurate financial records in business can’t be emphasised enough. Not only is this a legal requirement, it’s also essential for monitoring the health of your company and spotting any potential signs of trouble. If you don’t have adequate systems in place for maintaining financial records, it’s difficult to make decisions with confidence and clarity. If left unchecked, problems could escalate to the point of company insolvency.
What To Do If You Think Your Company Is Insolvent
If you’ve noticed one or more of the warning signs mentioned above, then you could be facing company insolvency. In this case, it’s important to act swiftly in seeking the advice of a licensed insolvency practitioner. They will be able to confirm whether or not your business is in fact insolvent, and guide you through the next steps to take from there.
In most cases, the most suitable course of action for an insolvent business will be to liquidate the company. However, in some cases it can be possible to recover the business, through methods such as administration or a Company Voluntary Arrangement (CVA). At Ballard Business Recovery, we can guide you through the best options available for your business, creating a suitable course of action that’s tailored to your individual needs. Don’t hesitate to get in touch for confidential advice.
