Is my company insolvent?
When a company is facing difficulties, the earlier the business owners seek help, the more time they and their advisers have to turn the business around, refinance or sell. This protects management, employees and the company’s key shareholders.
It’s crucial that business owners recognise the warning signs that their business is in trouble. This step-by-step guide can help you identify potential issues while there’s still time to resolve them:
- Do you owe more than you own? Take a stock-check of all your assets and compare them with all your liabilities, including any payments that are due shortly. If your liabilities exceed your assets, you may be heading for insolvency
- Can you pay your debts? Cashflow is crucial to a business and can cause problems even for growing businesses, where new people and equipment may be needed before customers will pay you. You need to make sure you can pay suppliers, employees and, particularly, your VAT and PAYE.
- How’s your relationship with your bank? You may need to borrow in order to boost your finances, especially when cash flow is tight. If you find that no lender will help, a small problem could become a crisis.
- Are you being pushed for payment? If your suppliers are tightening your credit terms, pressing for cash or even threatening enforcement, then insolvency is becoming a real risk. If these issues end up in a court, it may mean that your choices for being in control of a rescue process or your company’s future become limited.
- How is your relationship with key customers? Having stock and cash flow issues can lead to dissatisfaction for customers, who may take their business elsewhere, leading to further financial problems.
- Are you losing money regularly? Many companies won’t make a profit each month; however, if you’re regularly losing money, without receiving further investment, you may need to think about whether your company has a future.
- Are you distracted from your core business? Spending increasing amounts of time ‘fire fighting’, getting caught up in disputes or dealing with personal issues can lead to your core business suffering. Too long away from concentrating on essential operating activity can affect your business’s viability.
There are a number of options for a business in difficulty, from entering a Company Voluntary Arrangement, where an insolvency practitioner may be able to negotiate with creditors whilst you are protected from legal action to restructuring finances or formally selling the business. If your business is showing two or three of the warning signs above, you should contact a restructuring professional and get help to protect your company’s future.
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