Early Warning Signs That Your Business Is Going Insolvent
The majority of businesses will experience times when their finances especially cash flow become a concern. Thankfully there are plenty of early warning signs that appear in plain sight that indicator that your business could be at risk of becoming insolvent in the future.
It is important to take action early and make sure that you confront the problem whilst it is still forming and is only a minor issue. By taking control and making an effort to confront the situation early on you can avoid the occurrence of a huge crisis happening which could unfortunately lead to the closure of your business.
There are a number of reasons why business owners ignore the early warning signs of insolvency. These include; that they simply don’t think the problem exists or when they do notice a problem, they simply think it will get better and go away with time and fix itself on its own.
Business owners also often know that there is a problem but they don’t want to admit to it. In reality it is best to admit to problems and do something about it as soon as you possibly can.
Here are some early warning signs that your business could be at risk of becoming insolvent.
You Are Unable to Meet Your Upcoming BAS or Superannuation Payments
Although it is super important to make sure that you pay your debts, it is mandatory to make sure that you pay your superannuation and your PAYG Tax. If you fail to pay these two things you will most likely receive a Director Penalty Notice from the Australian Tax Office (ATO).
This means that you might be personally liable for these debts. To make matters worse, if you fail to lodge your BAS or Superannuation Guarantee Charge statements within three months of them being due, you will automatically be personally liable for the PAYG Tax superannuation subject to these lodgements.
You Have Failed More Than One ATO Payment Arrangement in A Short Period
The opportunity to obtain a payment arrangement with your creditors or the ATO, might see, like a fantastic way to ease any financial pressure your business is experience. However, if you fail to comply with the arrangement that has been agreed upon, there is a huge possibility that your business is potentially already insolvent.
You Don’t Have Enough Money Available to Pay All of Your Creditors
If you are finding it extremely difficult to pay all of your creditors within the requirement payment terms, then this could be another major early warning sign that your business is on the road to becoming insolvent.
Your business is most likely to be at risk of becoming insolvent if you have been struggling to pay all of your creditors for an extended period of time as opposed to just a short period of time. If things don’t look like they are going to improve in the near future than your business is definitely at risk of becoming insolvent.
You Are Getting Constant Reminders and Demands for Payments from Your Creditors
If your creditors are consistently following you up to chase a payment than you are probably at risk of becoming insolvent. Your business is probably finding itself in an even worse situation if you are receiving letters of demand from creditors and their agents who are hoping to receive the payments you owe them. If your business is experiencing this than you need to seek professional advice to help you understand the current state of your business and how it can be improved and more importantly how it can avoid becoming insolvent.
You Need to Lend Your Company Money to Meet the Amount of Money You Owe to Your Creditors
You need to keep in mind that if your company does eventually fail you might not recover all of the amounts that you have lent to it.
Furthermore, if you are thinking about making a loan to your company, you need to make sure you chat to a solicitor to get a loan agreement drawn up to make you a secured creditor and to also register for a PPSR security interest.
You Keep Making Losses
If your business makes a loss for one quarter or sometimes even a year this doesn’t always mean that your business is at risk of becoming insolvent. However, if a significant yearly loss or multiple losses with no sign of improvement is happening than this is a strong sign that your business is at risk of insolvency.
Your Bank Has Reduced Your Credit Limit or It Has Refused to Lend You More Money
