In the day-to-day running of your business, it can be easy to ignore financial warning signs as you get caught up in other important tasks. You put problems down to slow sales or inefficient staff and assume everything will get better whilst you look for short-term solutions.
Spotting problems early and admitting there is an issue, rather than ignoring them, is critical to fix and revitalise your business. Even if you have never had concerns before, keeping note of your financial situation is the difference between recovery and being wound up. By no means comprehensive, we have outlined a few of the key warning signs that your company is insolvent.
You have hit your overdraft limit
Your company overdraft is typically there for emergencies only, but once you start using it to pay employee wages or creditors, it is time to worry. Typically referred to as ‘ceiling borrowing’, this is a very clear sign that your company is heading into insolvency. Especially once your overdraft limit has been hit and you can no longer pay wages – no wages, no workforce.
Regularly making late payments
Are you struggling to keep up with payments? Regular late payments suggest poor management and cash flow issues in your business. Should your late payments remain a constant issue, it could seriously affect your company’s credit score, resulting in the refusal of credit from suppliers. In a worst-case scenario, the bank may be alerted and access your financial situation.
Creditors issue a winding-up petition for compulsory liquidation
If your debts are continuing to rise and you can no longer make payments, this is a critical warning sign that your company is on the verge of insolvency. If your creditors are owed more than £750 and believe you are not able to pay the debt, they are likely to submit a winding-up petition to the courts for compulsory liquidation – this is typically the last resort for creditors due to the cost. Your company will receive a statutory demand, with 21 days to make your repayments or dispute the demand and should you not answer; your business will be liquidated.
At IAP Consultancy, we have seen many businesses dip into a distressed or even critical trading position. The reason behind insolvency can range from issues such as lack of cash, over-expansion, loss of contracts or investment in ‘vanity’ projects. However, whatever the reason may be, the most important factor is to recognise the position, admit you have a problem and find professional support.
Failure is not fatal, we can arrange discreet, professional and independent advice and devise a plan to restructure your company. Our partners here at IAP Consultancy can affect quick responses to cash flow issues, with a planned short or long-term recovery strategy.
Get your business back on track today!