Unfortunately, the past year and a half of lockdowns and social distancing means that we are seeing a lot of companies go bust. There was simply too much of a burden placed on them during this tumultuous time even though there seems to be a light at the end of the tunnel. This relief has come too late for many and they are facing a shuttering of their businesses.
It isn’t easy to say goodbye to a business that you put your heart and soul into. It’s even more difficult to know when the time has come to declare insolvency and move on. In this article, we will go over some of the signs that your business is insolvent and it’s time to close it down. If you realize that it is time then insolvency practitioners, such as the Insolvency Experts in Manchester, can help you through the process.
Cash flow
The very first sign is fairly simple. If your bills have come due and you don’t have cash in hand to pay them then this means that officially you are insolvent. You may be hopeful thinking that you still have time to pay the bills and have a big payment coming in from an important client or that there is more funding on its way.
Technically, you can still keep the business operational, but in official terms you are already insolvent. Since at the time the bill came due there was not enough money to pay for it.
This date is important as it marks when the company directors are duty bound to the creditors before they are to the shareholders or even the owner of the business. It is this moment when they have to make sure that the creditors are able to get paid and trading for profit is all but over.
At a certain point, the insolvency due to cash flow problems is more evident as your business is being taken to court or at least threatened with legal action.
Check the balance sheet
When cash flow doesn’t seem to be an issue as the bills are generally benign paid on time, then the end of the year may come as a shock when the balance sheet paints a different picture.
It is at this time that the accountants are recording the annual figures. It then becomes clear that the debt the company has is higher than the assets. If everybody had to be paid in full at the end of this process then it would be clear that there are not enough funds to do so. This means the company is actually insolvent.
Start talking about a plan
If either of those two scenarios are in play then you are in trouble. Essentially if you were to lose a customer at this point then it could truly sink your company. Now is the time to start the insolvency process to make sure your creditors are paid.
