These are trying economic times we’re living in and an increasing number of small or medium enterprises are continuing to attest to the veracity of the above statement, by filing for bankruptcy or by facing insolvency.
The difference between insolvency and bankruptcy relies in a given business’s relation with debt. When insolvent, a business can no longer discharge its debts as they become due for payment.
While experts in insolvency say most such cases can be rescued, insolvency remains a critical situation, which company management needs to avoid at all costs, should they want to maintain the business up and running.
Once insolvent, company management also becomes liable for any insolvency trading, as well as any civil or criminal penalties that may or may not apply. As such, if you suspect your company is facing such a situation, read on to watch out for signs that will tell a tale you might not want to hear later on down the line.
Inability to Pay Taxes
Tax money is most often the one source of in-house funding that gets sacrificed, as a company attempts to keep itself afloat and continue to pay its employees their wages. For a while, everything appears unchanged, as precious cash savings and reserves get gobbled up in paychecks. However, by foregoing tax office payments, the company is only digging itself all the more deeply into a bottomless hole. Debt to the tax office tends to get amassed quicker than any company manager might be inclined to believe. As such, avoid delayed payments to tax officials, as they are the first step toward insolvency. A wiser move would be to turn to one of the many insolvency support and counseling companies out there.
Ongoing Losses and Poor Cash Flow
When it first started out, things were looking up for your company. Some money was coming in on a regular basis and the cash flow was positive overall. However, at some point, the situation turned around on its head and you are now wising up to the fact that you are experiencing ongoing financial losses. What is more, the cash flow is poor on good months and, most months, it’s downright in the red. The best (and only) course of action in such a scenario is for business management to identify assets which are sitting ducks (or idle), as well as assets which have been performing poorly for a long span of time. In order to generate at least a meager amount of income for the company, those assets ought to be sold. The focus should now fall on reducing overhead expenses, employee costs and any and all sources of company expenditure.
Legal Notices from Creditors
Usually, this is the final step right before insolvency. You will know you’ve truly come to dire straits once those final notices for paying up debt come in from your creditors. Alternatively, watch for complaints and queries from your suppliers, or any indication they are placing your transactions on their ‘special arrangements’ roster. If creditors have been making legal demands or issuing warrants and judgments against your business… chances are the time has come to pack up and head home.