As the clock ticks, business owners, directors, and their advisors should conduct a thorough business ‘health check’ to identify any potential red flags.
Ignoring the warning signs of insolvency is a risky move for businesses as it could close the window for taking corrective action. Additionally, directors may become personally liable for insolvent trading retrospectively.
Recognizing early indicators of financial trouble and taking prompt action can give businesses the best shot at survival or an orderly wind-up with minimal losses, leading to the most favourable outcome possible.
In situations where businesses have been trading while insolvent, engaging with business recovery and insolvency specialists can ensure matters are handled in a controlled manner. By doing so, you can mitigate risks and prevent potential actions that may arise once the insolvent trading moratorium concludes.
Here are 12 common signs of insolvency:
- Cash Flow Problems: Consistently struggling to meet financial obligations or experiencing delays in paying suppliers and creditors.
- Increasing Debt: Accumulating debt without a clear plan or ability to repay it.
- Declining Sales: A persistent decrease in sales revenue and difficulty generating new business.
- Losses and Negative Profits: Sustained periods of operating losses or negative profit margins.
- Overdue Taxes: Failing to pay taxes on time or having tax-related issues.
- Lack of Access to Credit: Difficulty obtaining new credit or extending existing lines of credit.
- Unsustainable Business Model: Operating a business with a flawed or outdated model that’s no longer viable.
- Decreasing Customer Base: Losing key customers or experiencing a shrinking customer base.
- Inability to Meet Financial Obligations: Struggling to pay employees, suppliers, or rent on time.
- Asset Liquidation: Selling off assets to cover day-to-day expenses or debt repayments.
- Legal Actions and Lawsuits: Facing lawsuits, legal actions, or creditor demands.
- Poor Management and Governance: Ineffective decision-making, lack of financial planning, and inadequate governance.
Keep in mind that experiencing one or two of these signs may not necessarily indicate insolvency on its own. However, if multiple signs persist and financial difficulties become apparent, it’s crucial for business owners to take proactive measures and seek professional advice to address potential insolvency issues.
If you believe you are seeing signs of insolvency, come speak to us today and we can help you work through those signs.
