Signs your company may be heading towards financial difficulty

It’s important to look at your business objectively. In many instances it’s hard to remove emotional attachment – put simply, think about your business as if it is someone else’s.

There are two common tests for insolvency, the first being ‘cash flow test’ which is when a business is unable to pay its debts as and when they fall due, regardless of assets. The second is the ‘balance sheet test’ which is when a business’s liabilities exceed its assets, regardless of when debts fall due.

It is openly debated that these two tests aren’t complete and distinct; one is a short-term view of debt, and the other a long-term view on assets. When applying these test legally speaking, a large number of SMEs could have technically traded whilst insolvent.

Before this happens however, there are patterns which can be identified, some of which include; not being able to pay creditors on time or in full; if creditors have issued final demands for payment or a statutory demand; creditors have commenced legal action on the company.

If your business has received a final demand or a statutory demand, this could soon escalate into the creditor commencing legal action and a Winding Up Petition being granted. That’s why it’s important to contact your Bolton business advisors as soon as you receive a final demand before it escalates into legal action.

If as a business you’re struggling to pay creditors on time or in full, you may be able to renegotiate terms.

If you spot any of these triggers, it may mean your business is heading towards insolvency. In some cases it may indicate a business requires a funding injection.

If you think your company could be heading towards financial difficulty, please contact our Bolton business advisors so we can assist you before it’s too late.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

DID YOU FIND THIS USEFUL?

Share it with your network:  

Want more great content?
Sign up to our newsletter

    Follow us

    Tweets by @CHW-accounting

    CHW-Accounting
    @chw-accounting


    Twitter: chw_accounting

    Read enough?

    Want to find out how we can help you and your business? Get in touch today and let's have a chat.

    WHAT'S THE NEWS?

    Grab a biscuit and a brew and read our latest news.

    8 March 2022

    Temporary reduced VAT rate for leisure and hospitality to...

    by

    On 8 July 2020, as an urgent response to the pandemic, the government announced a number of VAT measures including a temporary reduction of the VAT…


    Read more >

    1 March 2022

    National Minimum and National Living Wage changes April 2022

    by

    From 1 April 2022, the government is increasing but the National Minimum and National Living Wage rates. The National Minimum Wage is the minimum amount an…


    Read more >

    22 February 2022

    Dividend taxes to rise from 6 April 2022 –...

    by

    The government has confirmed that it will not be backing down on the planned hike in National Insurance (NI) and dividend tax from April 2022. There…


    Read more >

    10 January 2022

    Late filing and late payment penalties are to be...

    by

    HMRC has given self-assessment taxpayers more time to ease COVID-19 pressures. With the self-assessment deadline less than three weeks away, many individuals and agents will be…


    Read more >

    7 January 2022

    Making tax digital for VAT – April 2022 –...

    by

    Since 1 April 2019, VAT-registered businesses with a turnover above the VAT registration threshold of £85,000 have been required to keep their records digitally and provide…


    Read more >

    YOUR CHALLENGES

    No matter what your challenge is, we’ve probably dealt with it before.



    Need an Accountant?

    Get in touch >


    Need an Accountant?

    Get in touch >


    Tax issues?

    Find out more >


    Tax issues?

    Find out more >


    Trying to grow your business?

    We can help >


    Trying to grow your business?

    We can help >


    Managing cashflow?

    We can help >


    Managing cashflow?

    We can help >


    Starting a business?

    We can help >


    Starting a business?

    We can help >


    Looking for funding?

    Need help with funding? >


    Looking for funding?

    Need help with funding? >


    Buying or selling a business?

    We can help >


    Buying or selling a business?

    We can help >


    Adopt the cloud?

    We can help >


    Adopt the cloud?

    We can help >


    What else can we do for you?

    We can help >


    What else can we do for you?

    We can help >
    CONTACT US

    Get in touch, no hard sell, just a brew, a biscuit and a chat.