How Do I Know When I Need an Insolvency Practitioner?

For many businesses, insolvency can seemingly strike from nowhere. Sales are growing, profits are up, but within months or even weeks, the accounting department can start reporting a slide towards the red, as political events take directors by surprise, new regulations are announced in parliament, or suppliers struggle to meet the demands of their clients.

As we endure the economic downturn brought about by an unprecedented worldwide pandemic, the threat of insolvency has become only too real for many businesses across the United Kingdom. But while insolvency can seem unpredictable, it can be planned for – and smart business leaders know to bring in an insolvency practitioner for consultation long before the profit and loss charts start recording only losses.

In this article, we ask our expert team at Irwin Insolvency to explain how you can tell if it’s time to bring in an insolvency practitioner for a business turnaround.

Insolvency: When You Can No Longer Pay Your Debts

Insolvency occurs when a business can no longer pay its debts. Simply put, if the money coming into the accounts is less than the money going out, your business is heading towards insolvency or might already be there.

Insolvency isn’t an easy state of affairs to deal with or to overcome. It takes expert insolvency advice and outside consultation, because every business and each business owner has their own unique set of circumstances to take into account.

When you can no longer pay your debts, creditors start to chase their money, the business starts to haemorrhage its remaining cash, customers and assets, and eventually total liquidation occurs as the company is wound down. People lose their jobs, directors can be investigated by the insolvency service, and creditors left out of pocket.

But directors can look for tell-tale signs that indicate insolvency, and act quickly by contacting an insolvency practitioner for advice. If solutions are implemented fast enough, the business can be turned around and insolvency can be avoided.

If your business is experiencing any of these problems, it’s time to call in an insolvency practitioner.

Creditors Are Chasing Payments

If creditors are starting to call in their payments early or are chasing down your accountants or management team for late bank transfers, then it’s time to call in an insolvency practitioner.

If you’re unable to pay your creditors the money you owe them, then your company is already in a state of insolvency. You need to act fast to initiate a comprehensive turnaround, or to arrive at a voluntary insolvency agreement with the creditors.

It’s not too late to pay back the money owed however, and an insolvency practitioner can assist in the set up of an amenable company voluntary arrangement that gives you a chance to reorganise your finances and pay back debts through new instalment plans.

Sales Are Down, Customers Aren’t Being Retained

If sales are down or your company is losing rather than gaining customers, it’s time to call in an insolvency practitioner. You might not yet be insolvent, but if sales continue to fall you can quickly end up in the red and face liquidation.

Businesses need to keep sales sustainable and retain customers to make a profit, otherwise those books aren’t going to stay balanced. Insolvency practitioners can offer impartial advice and solutions, identifying the cause of a loss in sales or a loss in customer numbers, and implementing fixes before it’s too late.

Profits Are Down

Decreasing profits are a sure-fire sign that you need to contact an insolvency practitioner. Take action before your profits completely disappear, and seek out impartial business advice quickly.

Low profits can be a sign that your sales have slipped, or that you’re paying too much for overheads or suppliers. Finding ways to increase profits by cutting expensive or unnecessary overheads is one way to prevent insolvency.

You’ve Been Threatened With a Winding-Up Petition

If you’re deep in debt and haven’t been paying your creditors, then they are well within their rights to press a court to issue an involuntary winding-up petition. This is the first step towards total liquidation, and there’s never been a more pressing time to contact an insolvency practitioner.

You should contact an insolvency practitioner long before this occurs, but if that hasn’t happened, then a professional, licensed practitioner can still seek out the best deal possible with your creditors.

It might be possible for the company to be placed into administration, under the care of an insolvency practitioner. The directors lose control of their business until a turnaround has been worked out, but the company can be saved for another day. There are always potential solutions, no matter how dire the situation might seem, so always contact an insolvency practitioner if legal action is being taken against you.

It’s Never Too Early to Plan for Insolvency

Insolvency is serious business, but directors don’t have to wait until the company is falling apart to take action. In fact, the best time to combat insolvency is when your company is still very much in the green.

Insolvency practitioners can (and should) be contacted long before your business starts losing sales and experiencing losses. Directors have a duty of care to their company, and that involves planning for the future and making the best possible decisions in the interest of the business.

Insolvency can happen for a wide number of reasons, from bad management through to a cut in the supply chain, and it would be impossible for directors and business owners to account for every possible event. A good director can however account for the most likely outcomes and set rigid plans in place that help the business to avoid insolvency altogether.

For that reason, it’s never too early to plan for insolvency by contacting an insolvency practitioner. Independent advice can give your business the tools it needs to spot the onset of insolvency, or it can provide turnaround solutions that you can implement quickly if you find yourself experiencing a bad few months of sales.

Insolvency Practitioners Plan for Growth Too

Importantly, insolvency practitioners not only deal with pulling companies back from the brink, but they are able to offer expert advice to companies that want to grow their business.

After all, the best way to avoid insolvency is to be profitable. Business owners can strive for sustainability or continued growth, to ensure there’s a steady cashflow in and out of the company.

Insolvency practitioners can help you to expand your business, increase sales, cut down on overheads, and offer advice on breaking into new markets. They can also offer an expert array of advice that can help businesses to grow and, consequently, stay well clear of the looming threat of insolvency. In our opinion, the best cure for insolvency is prevention!

Contact Irwin Insolvency Today for Your Free Insolvency Consultation

Irwin Insolvency is ready to provide you with expert insolvency advice that could save your business from failure. Our professional team can provide you with the expertise and knowledge that your business needs to avoid liquidation. Our staff has years of experience working across a range of industries, and we’re ready to help you through these tough and trying times. Contact Irwin Insolvency today for your free consultation.

Contact Irwin Insolvency today for your free consultation

Call us
0800 009 3173

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency, rescue and turnaround.