10 signs that your business is insolvent

10 signs that your business is insolvent

April 28, 2023 by Sandra

The number of registered company insolvencies in the UK reached an all-time high in January 2023.

With a total of 1,671 insolvencies, this January saw a 7% increase in the number of registered insolvencies from the month before and an 11% increase in the number of insolvencies registered in the same period before the pandemic struck in 2020.

So, what’s going on? Well, there are a number of reasons that UK companies are struggling, from the ongoing cost of living crisis to soaring energy bills - plus, many businesses are still reeling from the long-term effects of the coronavirus pandemic too.

If your business is in trouble, then, you’re certainly not alone - and the good news is that if you are currently facing insolvency, all is not lost. In fact, recognising your business is in trouble could be one of the first steps you take towards turning things around.

Is my business insolvent?

A business officially enters a state of insolvency when it is unable to repay money it owes and unable to fulfil financial liabilities when they are due. Additionally, a company can also be deemed insolvent if its liabilities outweigh its assets.

When directors are caught up in the day-to-day running of their business, it’s very easy to miss the signs of insolvency. However, being aware of your business operations keeping an eye out for the warning signs could enable you to rescue your business before things go too far.

So, with that in mind, read on to discover 10 signs that your business is insolvent - and find out what to do next…

10 tell-tale signs that your business is insolvent

1. You consistently lack sufficient cash flow

Without a doubt, cash flow issues are one of the biggest warning signs that you could be heading towards insolvency. Of course, all businesses suffer periodic dips where cash is tight. But if cash flow is continually a problem, then your business could be in trouble.

If you’re finding cash flow an ongoing challenge, discover 10 tips to help solve your cash flow problems in this blog.

2. You’re functioning at the limit of your overdraft

All businesses have a bank overdraft facility as a safety net for occasional circumstances when cash is short and you need temporary assistance.

However, if your cash flow woes mean you are constantly operating within the limit of your overdraft, it’s a sign that your business isn’t coping with the current situation, and something needs to change.

3. You’re using your own funds

If you find yourself being refused other avenues of credit and are having to use personal funds to continue trading, it’s most definitely time to take action.

Whether you’re using your personal credit card to fund business activities, aren’t taking a wage at the end of the month, or worst-case scenario, are using your house as collateral for financing, you need to seek expert advice fast to make sure your business doesn’t drag you down with it.

4. You can’t pay bills when they are due

Are you struggling to pay your utility bills due to rising costs? Or perhaps you can make the payment on the latest invoice from your stationery supplier? Not being able to afford to pay your bills as and when they are due is one of the biggest signs that your business is failing.

5. You can’t pay your employees

In a similar vein, if you are struggling to pay your employees' wages, it’s a sure sign that insolvency is looming - especially if you have already not taken a salary yourself from the business in the hope that things might get better with the next big client win.

The fact is that if you are struggling to pay your employees, whether there’s a big win on the horizon or not, your business is already technically insolvent - so it’s time to seek professional advice as soon as you can.

6. You’re under pressure from your creditors

Not being able to pay your bills once when they are due is one thing - but if your creditors are putting ever-increasing pressure on you to pay and you are unable to appease them with the offer to pay in instalments, you need to seek professional advice as soon as possible to ensure your creditors don’t take legal action against you.

7. You’re spending most of your time firefighting

As a director, it’s part of your job to deal with business issues and complications as they arise. But if you feel like you are constantly fire-fighting due to the debts you owe, are fielding phone calls from angry creditors, or are dealing with ongoing cash crises that take away your focus from moving forward, it’s time to take action.

8. You have received a CCJ

If the pressure from your creditors is going one step further and you are either being threatened by legal action or have already received a Statutory Demand from a secure or unsecured creditor, you need to do something - and fast.

A Statutory Demand is often closely followed by a winding up petition which could mark the end of your business for good, so it’s essential that you stop burying your head in the sand and seek help.

9. You already have a Time to Pay arrangement

If your business is struggling and you are finding it hard to make tax payments when they are due, a Time to Pay arrangement can give you additional breathing space to settle your liabilities. In fact, HMRC’s key message is that if you can’t pay your taxes, they want to work with you to agree a plan.

However, if you already have an arrangement in place and are still struggling financially, HMRC may believe you to be insolvent and could wind up your company.

10. You’re fending off bailiffs

Finally, if things have got so bad that you’ve had bailiffs threatening to enter your premises, the chances are that unfortunately it’s probably too late to act.

Much like HMRC, even if you turn off the lights and hide, they will keep coming back - so it’s important to speak to an expert about your next steps so you can protect your assets before your business is closed down for good.

What to do if your business is facing insolvency

If your business is facing financial difficulty, recognising that you are in trouble could be one of the first steps towards turning things around.

No matter how scary it might seem, the good news is that a verdict of insolvency doesn’t necessarily mean that it’s the end of the road for your business, and there are in fact a number of formal insolvency options that could enable you to turn your company around.

From a company voluntary arrangement to administration, there are solutions available that can enable you to ring-fence your business as you put together a plan to pay back your debts.

At McAlister & Co, we are insolvency experts, and our friendly and approachable team are always available to help and provide clear, strategic advice on what to do next.

So, if your business is facing insolvency, contact us today for expert help and advice.

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