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.
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11 November 2019
Even in this digital age some businesses remain heavily reliant on cash transactions. HMRC views these as high risk and as a result targets cash businesses with VAT enquiries, using special techniques to justify investigating them.
6 November 2019
The first big deadline for MTDfV is history and whilst there was a fairly high failure rate, it was not as bad as originally feared.
29 October 2019
BPR shelters the value of your business from the HMRC. The trouble is though, when you retire from your unincorporated business, the relief disappears immediately. CHW explain how you can preserve it.
22 October 2019
New rules will apply to employment termination payments from 6 April 2020 meaning that some settlements will be subject to NI in addition to tax. With this in mind, CHW look at how you can you improve the tax and NI efficiency of a termination settlement.