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5 Signs That Your Company Could Be Insolvent

By: SmallBizClub


Becoming insolvent is generally the stuff of nightmares as far as small business managers and company directors are concerned. However, it is always better to address the issues upfront rather than hoping they might miraculously disappear or somehow resolve themselves.

There are also legal obligations to be taken into account when a company is insolvent, with its bosses obliged to pay creditors as fully as possible through the sale of any relevant assets under these circumstances.

Here are five signs to look out for if you’re worried about your business becoming insolvent:

1 – Relentless pressure from creditors

When a company is facing insolvency it is inevitable that its creditors will ramp up the pressure for payments owed. From the perspective of a struggling business this will generally equate to a feeling of being hounded about debts on a near-relentless basis.

Borrowing money for strategic reasons is an important part of small business operating but when your creditors start to demand immediate payment of monies owed then it could be that insolvency is not far away.

2 – Ceiling borrowing

The term ‘ceiling borrowing’ describes a situation in which a small business or an individual finds themselves without any flexibility as far as their credit arrangements are concerned.

From the perspective of lenders, any company that has been borrowing at the absolute maximum level available to them for an extended period of time will be considered to be well on its way towards insolvency.

3 – Directors going without pay

The commitment to the cause demonstrated by directors or business managers who forego their own pay during tough financial times is admirable. However, having the leaders of any enterprise go without pay even for a brief period of time can be and often is viewed as a sign of impending failure and certainly of significant financial distress.

4 – Important bills being left unpaid

The process of juggling bills and timing payments in the most advantageous way possible is a familiar one to most company directors or entrepreneurs. Even thriving businesses don’t necessarily pay off all their bills the instant or even the month that they are received.

However, when a company is unable to pay its most important and pressing bills due to a complete or near-complete lack of funds then it will tend to be reflective of insolvency.

Quite what should be considered to be an important bill is a matter of judgement but when a payment reaches the point of being demanded by court order but still goes unpaid there is no hiding place from the need for action to prevent insolvency.

5 – Cash flows drying up

There is scarcely a small company in the world that can survive for long without any sort of cash flow. Small businesses are particularly susceptible to seeing everyday cash flow concerns develop into serious financial headaches and even the kind of difficulties that reflect full blown insolvency.

Seeking the right advice at the right time

No company director ever wants to be in the position of seeking out support and assistance in the context of financial distress but the right help under these circumstances can make a massive difference in terms of how the process plays out and how it eventually impacts the individuals involved. In many cases, prompt action with the right support will mean that the worst potential scenarios can be quite easily avoided.

Author: John Baird has been involved in personal insolvency and finance since the turn of the century and specialises in advising Scots in financial distress. He offers this support though the website Scotland Debt Solutions. You can also reach him here on Google+ https://plus.google.com/104645336054442510370/posts  

Published: July 25, 2014

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