It is no small feat to run a successful business. There are several different things that cause your business to fail. The threat of insolvency is one of the biggest worries for any business owner, and rightfully so. However, it is important to remember that a business isn’t going to become insolvent overnight. There are usually plenty of signs that will point to insolvency long before the business reaches that point. Principle Insolvency is here to talk about some of the signs that business owners should be aware of and watching for.
Warning Signs of Insolvency
When it comes to running a business, it is vital that business owners know what to watch for that can indicate there is a risk of insolvency. Here are some of the key warning signs that point to that direction:
– Lack of Working Capital: The reasons working capital is so important for a business is because this is the funds that are needed to run the business day in and day out. If a company can’t secure working capitol, it is surely in trouble.
– Consistently Under the Break Even Point: The revenue a company brings in and the amount of money it takes to run the business shouldn’t be equal. When they are equal, this is known as the break even point because the company isn’t making money; they are just barely able to make ends meet. If you are consistently at or under the break even point, your company is more than likely in trouble.
– Unable to Meet Outgoings: The outgoings of a company would include things like rent, payroll, utilities, loan payments and more. If you are unable to meet the outgoings with the revenue you’re generating, it is a big problem. This is often a warning sign of an impending insolvency. While some businesses will borrow to pay off these debts, it isn’t a great solution to a much bigger problem.
– Formal Review of IRD: The Inland Revenue Department (IRD) may put a company under review if they feel the company is facing severe financial problems. They will initiate this formal review that will take a close look at a company’s financial position as well as their tax compliance.
– Inability to Secure a Loan: Businesses often need other financing when they are looking to do things like expand. If a company can’t secure a loan because of their lack of assets and financial standing, it is a big sign that they are in trouble and facing insolvency. If lender doesn’t have the confidence that a company will be able to pay back a loan, there is a problem.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If you’re worried your business is facing insolvency, you can turn to Principle Insolvency to help you come up with the best solutions possible to help a business that is in trouble. We can help you explore your options. Call us today!