What are the common signs of business insolvency?
If you’re concerned your company might be heading towards insolvency, watch out for warning signs. Financial troubles can sneak up slowly, making it hard for directors to notice. But the sooner you spot the issue, the more choices you’ll have. Check for these problems to see if your company is in trouble.
Finding it hard to pay bills when due
If you can’t manage staff wages, the electricity bill, or the latest supplier invoice, it’s a big warning. Cash flow insolvency means not paying bills on time. Apply this test to your situation to understand how well your business is doing.
Creditor pressure
If creditors are constantly pressuring you to pay, facing legal threats, or unable to negotiate instalment plans, seek professional advice promptly. Relentless creditor pressure requires urgent attention. A debt as low as £750 allows a creditor to petition for winding up the company.
Pay freeze for directors
If a company enforces a pay freeze for directors, it indicates significant financial troubles, making the business unsustainable. Being unable to pay yourself is a serious issue impacting both personal finances and the company’s health. If directors have given personal guarantees for company loans, these may be enforced if the company faces insolvency.
Reached the limit of overdraft facility
A bank overdraft is usually set up as a safety net for businesses, providing temporary help when cash is low until expected payments arrive.
Consistently maxing out your overdraft suggests your business is struggling and operating unsustainably. If the bank sees your overdraft being overused, they may take steps to limit further borrowing.
Rejected applications for borrowing
Consistent borrowing rejections signal your company is not only declining but may be nearing financial collapse. Ordering stock may pose challenges as suppliers safeguard against bad debt. Additionally, seeking further funds from existing credit lines might be futile if they are already exhausted.
Late payments to HMRC
HMRC poses a significant threat if your company lags in tax and National Insurance payments. They have a history of winding up companies they deem insolvent, as letting them operate contributes to the debt. If you’re behind with HMRC, it poses the most significant risk to your company’s recovery.
Frequently dealing with crises in the business
Directors often face constant daily challenges, causing a business standstill by diverting focus. Handling calls from irate creditors or managing a cash crisis, unable to pay staff, can be overwhelming. The problems can overshadow solutions, leaving you demoralised and stuck.
Delayed Payments from Credit Customers
Lacking efficient debt collection procedures severely impacts cash flow, potentially leading the company to insolvency. Streamlining the money collection process ensures a healthier working capital each month, forming a solid foundation for business recovery.
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Insufficient Management Information
Running a successful business hinges on understanding your figures. An effective management information system lets you foresee cash shortfalls or declining sales, aiding timely action.
Setting up such a system is simple with today’s technology. Once installed, it could reverse your current decline and restore profitability.
If concerned about your company’s finances and nearing insolvency, seek advice from a licensed insolvency practitioner. Vanguard Insolvency specialises in company rescue and recovery, offering a free initial same-day meeting to explore your best options. Contact our expert team at one of our 100+ offices.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.