One of the most common observations of business owners who experience insolvency, is just how quickly the scenario can develop and almost take them by surprise.
Every business can sometimes get behind with paying their bills and experience difficulty with meeting deadlines on VAT and PAYE payments that are due, but there is a clear distinction between being in debt and actually being insolvent.
Insolvency is a serious step but you need to be able to spot the warning signs and be prepared to call an insolvency practitioner and or insolvency practitioners when it is the right call and necessary for a whole host of business and personal financial reasons.
1. Cashflow problems
Having cashflow problems is one of the recognisable issues linked to potential insolvency.
If you are experiencing problems with being able to pay your creditors on time and find that you are unable to place orders or obtain lines of credit due to late payment putting your account on stop, this is the time when you need to evaluate how serious the problem is.
Daily calls and threats of court action are definite signs of distress and if you are a director of your company, you have a specific set of responsibilities, which include making decisions or seeking advice if you believe that the business is not in a position to pay its debts and may be insolvent.
You can be found personally liable and even prosecuted if you do not act in accordance with your duties and responsibilities as a company director, so analyse your cashflow problems and act upon what you find.
2. Problems with HMRC
HMRC are not likely to be that patient if you are late with payment or reporting deadlines. If you have not paid your PAYE by the end of the following month when it is due, you will probably be facing swift recovery action.
If HMRC think your business is insolvent, they will act quickly and petition the company. Consult an insolvency practitioner if you think that the taxman is going to take matters into their own hands, so that you have some options to discuss before it is too late.
3. Factoring finance not enough
Although related to cashflow problems, using factoring finance and finding it is still not enough to solve your money problems, is a clear warning sign that things are not right within your business.
4. Management issues
Many businesses will experience some executive issues at some point, but insolvency tends to bring business management problems to a head.
Poor communication, lack of leadership or direction and problems remaining unresolved, are three factors that could be pointing towards that the business is in distress and management is failing to tackle the problem, by ignoring warning signs that things are not right within the business.
5. Insufficient turnover
Turnover can fluctuate with many types of business, especially if there are known seasonal trends, but you need to act if you notice that your turnover has dropped below your known break-even point and you can’t raise enough working capital to fund your order book.
6. Personal problems
Being a director of a business that is experiencing problems can take a personal toll. If you are experiencing sleepless nights and constantly worried and stressed about the state of your business, it may be time to call in the insolvency practitioners.
Remember, all business face difficulties. There is a whole industry built around helping businesses that are going through difficult times, so make sure you explore all your options.
Adam Johnson is a small business consultant of many years. Now semi-retired, he likes to spend some of his time blogging about his insights online. His articles appear on many business and finance websites and blogs.
