Early warning signs your business may need liquidation advice

Detecting warning signs of business insolvency as soon as possible may help turn a company around before it’s too late.

Hindsight is always 20/20, therefore it may be hard to notice early signs of trouble.

But once one, or more, of the following signs start to appear, the answer to the question of when to seek liquidation advice is ‘immediately’:

• Consistently paying bills late

One of the earliest indicators of potential business liquidation is a company’s inability to pay its bills on time.

While a delayed payment can happen while running any business, it should never be a constant occurrence.

If it is, then it’s a sign to seek out cashflow problem advice.

Consistently paying bills late is one of the early signs of insolvency in the UK because it demonstrates that the business can’t meet its financial obligations.

• Escalating demands from creditors

Similarly, a key part of conducting business is accruing debts with the intention of repaying them once the company turns a profit.

However, once it becomes harder for the company to make debt repayments, creditors will take action to recover their money.

This may start with phone calls and letters demanding repayment and ultimately lead to threats of legal action or winding up orders.

It’s important to take these early notices from creditors seriously, as it’s one of the earliest warning signs of business insolvency.

• Inability to meet tax obligations

A company is required to pay different types of taxes, including corporation tax, VAT, and PAYE for its employees.

However, if a business is experiencing cashflow problems, then much like its bills and debts to creditors, these payments are likely being made late.

This is when to seek liquidation advice, as failing to make payments to HMRC puts your company at a risk of sanctions and, worse, business liquidation.

• Difficulty paying staff wages

Employees are key to the success of any company.

Therefore, it’s a true sign of financial distress and subsequently one of the early signs of insolvency UK when wages are delayed or cut.

Late or unpaid wages can lead to low staff morale and distrust in the company.

At this juncture, employees may suspect upcoming layoffs and quit, resulting in high employee turnover.

This can be especially alarming for employees if members of upper management begin leaving.

Problems paying staff is a crucial indicator of when to seek liquidation advice so directors can explore refinancing and restructuring options before there’s a need to terminate employee contracts and close the business.

• Increased personal loans to the company

While cashflow problems and an inability to repay your debts – whether owed to employees, lenders or HMRC – is a red flag, an unrecognised warning sign business of insolvency is using personal funds to keep the company viable.

When a company is starting out, it’s understandable that personal savings from the owner or company directors may be used until the business becomes profitable.

However, constantly having to inject cash into the business by way of personal savings, personal loans, or personal credit cards is a glaring sign that it needs cashflow problem advice.

At this point, the company has exhausted its own lines of credit and has no prospects of obtaining a business loan.

However, heavy reliance on personal funds is unsustainable in the long term and will lead to business liquidation if there’s no intervention.

• Loss of lucrative clients

Another integral part of running a business is the potential loss of clients.

While this isn’t uncommon and can happen for a myriad of reasons, losing several lucrative clients or contracts can be devastating for a company’s operations as it means a significant loss of revenue.

This in turn will only exacerbate other issues the company is facing that are also warning signs of business insolvency, such as cashflow issues and threats of legal action by creditors.

In the event of a crippling loss of income and difficulty finding new clients, seeking advice may be crucial, as business liquidation may be on the horizon.

Get in touch with Irwin Insolvency for Liquidation Advice

Don’t wait for winding up orders to seek out liquidation advice.

As soon as one of these signs becomes a common occurrence for your company, it’s time to seek professional help.

Contact the experts at Irwin Insolvency, who have accumulated more than three decades’ experience helping companies navigate the liquidation process.

Get in touch with our team today by calling 0800 254 5122 or emailing mail@irwinuk.net.