Tuesday, July 5, 2022

Top Signs That Your Business Is Heading Towards Insolvency

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Every business owner dreads to see their company become insolvent. And this is understandable since they might have invested the best years of their life building up the business. However, it is very necessary that you know the early signals of insolvency so that you can take the right steps to deal with the issue, and maybe even avoid it. Below, we will look at a few such warning signs.

Poor Revenue Projections

Consistent revenue is the lifeblood of any business. Your company will survive a revenue scarce situation if it only occurs for a small period of time. But if your revenues have been falling for several months and all business projections show that they will keep falling in the future too, and then it is definitely an indication that your business might be heading towards insolvency. After all, as the revenues continue to dip, you will be hard pressed in making your debt payments on time. And eventually, you may be in a position of being unable to honor any more debt repayments.  

Incorrect Accounts

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A healthy business is one which maintains all accounts perfectly. As such, if you see that your business accounts are a mess and that you are unable to accurately maintain it anymore, then it is definitely a sign that your business is in trouble. You can get a professional accountant to take a look at it and sort it out. But if they too bailout, then it is highly possible that the business might be heading towards loss and insolvency. And worst of all, you may not even know about it.

Banking Issues

How your bank starts to treat you is also a good indicator of the financial health of your business. If you see that the bank has cut down the credit limit of your business and do not wish to provide you more funds, then you should take it as a sign of financial trouble for your business. After all, a bank is not going to refuse credit for a business it believes will succeed. In addition, if the bank has been asking you for any personal guarantee or increased security for your loans, then that too is troubling. And if they send in any representative to investigate your accounts, then you should definitely be worried about the future of your business.

Creditor Signals

Similar to a bank, your creditors are also a big source that provides liquidity to your business. If they refuse to provide more credit, then your business activities can essentially come to a standstill. As such, watch out for any warning letters from creditors asking you to make the debt payments in full. If you are unable to comply with them, then you should expect legal warrants. That will definitely spell disaster, and it might only be a short while before your business is declared insolvent. So, keep a watch out for these signals from creditors.

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Consistent Losses

Has your business been suffering losses month after month without fail? If so, then there is a definite danger of insolvency. You should immediately do a thorough check of all the accounts and identify the reasons as to why the profits are declining. If the sales are dwindling, then take action to boost the sales. If costs are rising, then take steps to reduce costs. Whatever you do, ensure that you break the losing streak that your business is on, and reverse it back into a profitable path. And in case you are unable to do so, then the business will likely be declared insolvent.  

Imbalance In Assets And Liabilities

When you see that your net liabilities are greater than the net assets on the balance sheet, then you must take it as a warning sign of insolvency. Allow the situation to continue longer, and the liabilities might become too much of a burden that you will start missing payments. Eventually, you will find yourself in a position of not being able to pay the monthly repayments.

So, if you are noticing any of the above signs in your business operations, then you definitely need to come up with a plan to deal with it. The best way to do this will be to get insolvency advice from a professional insolvency practitioner. If you try to handle the problem by yourself, then you might make mistakes that damage the financial prospects of your business even more. In contrast, since the insolvency practitioner has years of experience handling similar situations, they are better equipped to deal with your problem.

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Sara Revonia
Sara Revonia
Entrepreneur, Speaker, Author, and Mom. Sara Revonia’s articles are about business, life, and Entrepreneurship.
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