How to spot if your business is insolvent

How to spot if your business is insolvent

There are three common ways to spot if your business is insolvent:

  1. Cash flow
  2. Balance sheet
  3. Legal action

Cashflow – can you pay your debts on time?

If you struggle to pay your suppliers on time, or struggle to pay your employees NI and Tax deductions to the Inland Revenue or PAYE and VAT to HMRC on time then it seems you are struggling with cashflow. If paying what you owe on time is regularly difficult for you, then your business may be insolvent.

Balance sheet- do you owe more than you own?

If your business has more than liabilities than it does assets then, then this is another indication of insolvency. If your accounts say that you have more assets than liabilities, double check that your accounts are correct, pay particular attention to items which may have been overvalued, look at redundant stock and debts that have never been collected, now deduct these items and see if your assets still outweigh your liabilities.

Legal action – are you being taken to court by your creditors?

If you owe a creditor more than £750, then they can take the following legal actions against you:

  • A country court judgment – this is a legal decision from the court stating that the business owes them money. If still unpaid the court may investigate your business to see if it is insolvent
  • Sending in the bailiffs to recover what they are owed
  • A petition to the court to order your business into liquidation if the debt is not settled within 21 days

If any of the above actions are taken against you it is likely that your business is insolvent.

What to do about insolvency

If you believe that your business is insolvent, or your business is suffering from financial difficulties it is important to take action as quickly as possible. As a Director of the business you are responsible for the business and the interests of your creditors, so it’s important to take action to try and turn things around as soon as you can.

Professional advice

Knowing what to do to turnaround a business which is suffering from insolvency can be daunting and overwhelming, but don’t worry there is plenty of help available. Business turnaround specialists and insolvency practitioners are experienced in dealing with businesses in the same situation as you. They will be able to explain all the options available to you, plus the risks and benefits of each choice; they will also be able to help you put your chosen plan of action in place.

To understand the whole range of options and to get help choosing the right one for your business contact us on 0800 597 4757 or enquire online using the form opposite.