How to Detect Business Insolvency and How to Avoid It

Monday, February 24, 2020, 6:00 PM | Leave Comment

No business wants to lose grip on its finances. Debt and money problems only lead down a dark and dangerous path for many companies, and once you’re a significant way in, it can be very difficult, or perhaps even impossible, to rectify the situation.

That is why it’s crucial to know how to detect corporate insolvency and know what you can do about it.

  • What is Business Insolvency?

    Insolvency occurs when a business is unable to pay an amount of money owed when it is due. This amount could be something small or large and can occur in any respect regarding money owed and debt accrued.

    When a business has fallen into insolvency, it is usually due to one of the following:

    • The business cannot provide the cash amount owed. This means alternative assets or property with a value may still be owned and enough to pay debts, but physical cash is not at hand, meaning a business may have to sell an item to gain the cash.

    • The business has neither cash nor assets to fulfill the debt amount. This is what most commonly results in a company going bankrupt if the complete total of assets is still not enough.

    Professional firms like Hudson Weir Insolvency Practitioners are skilled with assisting any insolvent businesses, so it’s advised that you make contact with anyone who can help if you are concerned about falling into bankruptcy or any other money issues.

  • Key Signs of Insolvent Businesses

    As long as you pay attention to your business finances and have methods in place, you will be able to detect any crucial signs that your business is moving towards insolvency.

    These signs include:

    • Your business account is continually at its absolute limit, or perhaps living in an overdraft;

    • Overtrading, namely, spending more than your business can afford, on a regular basis;

    • Your business lacks the funds for continued growth;

    • You have already accrued debts, either with a tax supplier, vendor or any other provider relating to finances;

    • Your business has a high staff turnover;

    • Debts are numerous, and happening frequently without any closure;

    • Cash flow appears to be in a state of crisis;

    • Your business has received letters demanding repayment or final warning statements;

    • Your business has received physical visits from debt collectors.

    If a few, a majority or all of these points ring true, then your business may be at risk of insolvency.

  • How to Avoid Corporate Insolvency

    The simplest way to avoid your business slipping into insolvency is to take constant care of your cash flow and manage your finances well. Always remain in control of your business cash flow, at all times.

Depending on the size of your business, you may not have the means or staff to have a designated financial officer or finance department; if this is the case, you will need to be sure to implement stringent methods to always make sure that cashflow is kept on top of, especially if you are doing it yourself. Think about software and technology which can help you keep a better track of your business finances, and have a routine for balancing the books.

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