When in the midst of running a business, it can be easy to miss or overlook the signs of approaching insolvency.
Many business owners make the fatal mistake of not taking late payments or debts seriously. Of course, not every late payment signals the end for your business, but insolvency has a nasty habit of sneaking up on you if you’re not on the ball with your finances.
If your business is showing signs of approaching insolvency, seek help from an insolvency practitioner sooner rather than later to stop things from spiraling out of control.
Make sure that you are familiar with the five primary warning signs of business insolvency listed below to help identify cash flow problems early on.
You’re receiving demands for payment
If you’re struggling to pay bills on time and finding yourself under increasing pressure from creditors, then your business is likely to be suffering from serious cash flow problems. If you’ve received a threat of legal action from a creditor then things are likely to be very serious, remember that you only need to owe a debt of £750 to receive a winding-up petition from a creditor.
You’ve maxed out your borrowing
Credit should only be used very occasionally as a temporary solution to aid short-term cash flow problems, so if you find that your credit limit has been maxed out alarm bells should start ringing. If you’re constantly in your overdraft or suppliers have started to refuse you credit then your business has become unsustainable and it’s time to urgently review things.
You’re struggling to pay wages
If you begin to worry about whether the business will be able to afford to pay employee wages at the end of the month then insolvency is probably looming. Whilst you may be able to put off paying your own wages for a few months, if you cannot pay your employees then your company is technically already insolvent.
You are not being paid on time by credit customers
Not being paid on time by your customers can cause a domino effect that then puts you behind with payments to your creditors too. If late or missing customer payments are causing you cashflow problems, it’s time to review relationships and payment terms with your debtors.
Lack of financial information
One of the key reasons why insolvency creeps up on so many business owners is lack of financial information and reporting. Reliable processes should be in place to regularly create accurate reports about your financial situation to help you make informed business decisions. At minimum, you should always have access to your business’ aged debtor report, bank reconciliation, sales and cash flow forecasts.
If your business is showing any of the five warning signs of insolvency listed above it’s important to act fast to get your finances back on track and avoid further problems. For advice and guidance to help get your business on the road to recovery, speak to one of our expert insolvency practitioners by giving us a call for free on 0800 009 3173.