Many businesses will face some level of financial strain within their lifespan, but it can be difficult to know when seeking professional assessment may be appropriate.
Many businesses will be faced with financial strain within their lifespan, but it can be difficult for directors to distinguish between the temporary struggles of a growing business or more serious problems that may require professional assessment. Should your business be faced with more severe signs of financial distress, it is always better to seek the help of a licensed insolvency practitioner (IP) sooner rather than later, in order to avoid more harm coming to your company should you fail to act appropriately. Continuing to trade, for instance, could lead to allegations of wrongful trading, whilst taking too long to solicit a professional evaluation of your business could see the insolvency process being forced on you by way of a director serving a winding-up petition. With this article, we will examine what it might look like for a company to be in a position where enlisting the help of an IP is necessary and how this can help your business recover.
Early signs of financial distress
Sudden cash flow problems or unforeseen changes in your business’ circumstances, such as the loss of an important client, are two of the more common signs that a business may have reached a point that requires the eye of an experienced IP to identify whether or not your company is still solvent. Such an evaluation is necessary to determine how your business continues operating during its time of trouble. As previously mentioned, trading may need to cease if your company is found to be insolvent. Continuing to trade with the knowledge that your business is insolvent could result in accusations of wrongful trading and lead to liquidators taking disqualification action against you should your company later go into liquidation. For this reason, it is recommended to seek the advice of an IP as soon as possible to find out whether you are able to continue trading or need to cease doing so immediately.
How do I know if my business is insolvent?
There are two main different types of insolvency. Insolvency may take the form of cash flow insolvency, which is defined by a company’s inability to meet payment deadlines, whether these be tax payments, paying employee wages or paying off supplier invoices. Balance sheet insolvency, on the other hand, occurs when the cost of a company’s total liabilities outweighs the value of its assets. If your business meets either of these two descriptions, then you must seek out the expertise of an IP as soon as possible, as you may need to stop all trading and prioritise the satisfaction of your creditors. Your IP will be able to advise you on whether or not this is the necessary course of action.
How can an insolvency practitioner help?
Insolvency practitioners are experienced in analysing the health of a business and ascertaining the extent of their problems. Should you enlist the help of an IP, they will initially perform an evaluation of your business and its operations, determining how serious its issues are and what your options are to aid its recovery, potentially making suggestions regarding refinancing or restructuring, whilst also working to meet the interests of its creditors. Should the IP’s analysis identify that your company is still solvent, they will still be able to suggest means of improving your company’s health, whether this be advice on personal guarantees, improving cash flow or suggesting repayment solutions to avoid creditors initiating insolvency proceedings against your business.
What risks are involved in not seeking professional help early on?
If your company is faced with signs of financial distress, you should seek the advice of an IP as soon as possible to find out whether you are able to continue trading or need to cease doing so immediately. Ignoring the warning signs of cash flow problems or trouble paying bills runs the risk of your business being forced into liquidation. Owing one of your creditors £750 or more gives them the right to take action against your company in the form of a winding-up petition, which, if successful, will result in the compulsory liquidation and shutting down of your business. Moreover, once one creditor takes action, this will encourage others to do the same, with HMRC being infamous for striking with winding-up petitions quickly and aggressively in order to regain unpaid tax.
If you would like to know more about your business’ health and what an insolvency practitioner can do to aid you, contact Voscap on 020 7769 6831 or email help@voscap.co.uk to speak to one of our business recovery specialists.
If you’d like to receive a quick and easy-to-understand appraisal of your company’s financial well-being, you can complete a free, five-minute financial health check on our website. Alternatively, you can apply for a more detailed free business assessment, and one of our insolvency experts will get back to you within 24 hours.
