When a company is no longer able to pay its debts using the company resources that are available it is determined to be insolvent. In the current economic environment, as a result of business forces, many business owners are finding that they are unable to meet their ongoing financial commitments and are falling further and further behind.
Once it has been determined that a company is insolvent there are essentially two ways that an insolvency practitioner is able to assist. Depending on individual circumstances, companies that are in trouble can either be assisted to trade out of their difficulties or wind up the company, known as liquidation.
So, how do you know if your business is in trouble and you should start thinking about liquidation as a solution? There are 3 main areas of the business that you can look to as indicators of your business’ situation:
Financial statement indicators
This refers to both the company’s paperwork in relation to its finances as well as the information that is presented in that paperwork. Some specific financial statement indicators that a business should look for to determine if there is a potential problem include the recording of continual losses or the inability to produce timely and accurate financial information. This data helps to report on the company’s trading performance and financial position as well as assisting with making reliable forecasts. If you are having difficulties with producing your financial reports or the information contained within them is not as positive as it should be, it should be investigated further to determine the main cause of the problems. It may, or may not, mean that you require liquidation immediately but either way it will help you to identify potential issues that could cause problems in the future.
Cash flow indicators
Cash flow, and cash flow indicators, are related to the availability of money in the business. Factors that could indicate that the business is in trouble and should be further investigated include overdue State and Federal taxes such as Income Tax, GST and Payroll Tax, making payments in rounded figures and only paying minimum amounts and issuing post-dated or having dishonoured cheques. If any of these are apparent in your business it is important to look into the reasons why and attempt to rectify them as soon as possible in order to minimise the effect on the business. If it is not easily rectified then it is likely that your company may be trading insolvent and you may need to look at liquidation as a resolution.
Creditor relationship indicators
A creditor relationship is the business dealings with entities that the company owes money to or is due to pay. For instance, if you have a bad relationship with your bank and subsequently may not be able to borrow further funds from there, or any other alternative means, this can be an indication that insolvency and liquidation are imminent. Additionally, if you have creditors who continue to be unpaid outside of their stipulated trading terms or suppliers are requesting that you move to cash on delivery or require payment before supply this can also be an indicator of an insolvent, or soon to be insolvent business.
If any of the above apply to your business then it is wise to act now. The longer you leave a problem, or a potential problem, the worse the clean up will be. The team of lawyers and accountants at The Quinn Group can assist you with identifying and resolving problems that your business may be experiencing as well as assist with the liquidation process if that is what is required. For individually tailored information and advice on what you should do for your business situation contact us on 1300 QUINNS or click here to submit an online enquiry.