What are the Early Signs of Insolvency?
A large number of insolvent businesses could have avoided their fate if they had sought insolvency support before it was too late. The problem is that it is surprisingly difficult to tell whether your business is nearing insolvency. Luckily, there are a few telltale signs that your business is at risk, and we’ll be exploring these signs in this blog post.
1. Cash flow
Of all the markers of financial health, cash flow is the easiest and simplest to diagnose. If you are spending more than you are earning, you’re experiencing a decline in cash flow. It’s perfectly normal for a business to experience a squeeze on cash flow from time to time. However, if this turns into an ongoing issue, then there is probably an underlying issue that needs addressing.
2. Paying the Bills
Every once in a while, someone forgets to pay a bill. But there’s a big difference between the odd lapse in organisation and a business that’s continually making late payments. This and defaulting on your bills are obvious signs that your business is in poor financial health, and should be implementing solutions to prevent insolvency..
3. Maximum Borrowing
Business loans are an intrinsic part of the world of trading. Because of this, business loans are a good indicator of whether your business is at risk of insolvency. If you’re getting turned down for loans repeatedly, it might be because you’ve reached a maximum borrowing limit, most likely because of a bad credit record.
4. High Interest Payments
If you can still access business loans, but the only loans you have access to come with sky-high interest rates, this is a bad sign. It means that your creditors are treating your business as high-risk.
5. Falling Profit Margins
A declining profit margin isn’t good for any business, and it could happen for any number of reasons. Sales could be too low - an obvious sign that your business is on the decline, or you could be losing clients.
On the other hand, it could be because your sales are too high. This, combined with high costs and a lack of investment, could mean your business becomes unable to fulfil your orders. Contrary to popular opinion, high sales don’t always mean your business is booming.
The early signs of insolvency can manifest themselves in various ways. One sign that appears on the surface of the business is the stress levels of its managers and employees. Stress is a symptom of poor financial health which, as we have said, can only speak for the prospect of insolvency.
Seeking Insolvency Support?
Signs of insolvency have to be grappled with quickly if your business is to stand a chance of surviving financially. If you believe your business is at risk of insolvency, a limited free consultation with Silver Insolvency Solutions could be of enormous benefit to you. It could mean the difference between unmanageable debt, and financial recovery.