Barring a major disaster, a business doesn’t go from being perfectly fine to insolvent overnight. There is usually a whole list of precipitating events that go overlooked or aren’t managed correctly in order to get to the point of no return.

Sometimes, you can be so involved in the day-to-day running of the business that signs of financial trouble can pass you by. Usually, your accountant should pick up on these signs, as we discussed in a previous article, but sometimes these signs slip through the cracks.

In this article we look at three different risk stages for business owners. What are the signs you need to look out for to recognise financial trouble? What can you do right now to help avoid insolvency?

Stage 1: Your business could be heading for financial trouble if you’re:

• - meeting your current tax obligations, but have tax arrears.
• - struggling to pay your creditors within their normal terms.
• - increasing your overdraft facility in order to pay your creditors or meet payroll.

What to do: Don’t ignore the problems and hope they go away. Start working toward solutions now before these problems become overwhelming. Speak with your accountant to get an accurate picture of your finances and plug the holes.

Stage 2: Your business could already be in trouble if you’re:

• - struggling to fulfil current or new orders as you don’t have the available funds to purchase raw materials.
• - being cut off by creditors for not paying within their terms.
• - can’t accept new orders.
• - being threatened with legal action.
• - under risk review by the IRD.
• - having a conversation with your accountant and he/she looks very grim.
• - fighting with the bank, who are trying to rescind your overdraft facility.
• - forced by your bank or creditors to undergo a review.

What to do: Negotiate creditors compromises, and work towards paying down/paying off business debt. Speak with a qualified professional – like the team at McDonald Vague – about your options to avoid insolvency and improve cash flow.

Stage 3: Your business is in serious danger of insolvency if you’re:

• - unable to raise working capital and are on stop with key suppliers.
• - consistently under break-even point with turnover.
• - not able to meet your outgoings with revenue.
• - being put under formal review by the IRD.
• - unable to take a company loan secured over company assets without a personal guarantee too.

What to do: Your business is in emergency mode. You need to act fast to salvage your company. Contact the professional team at McDonald Vague to find out your options.

You can avoid insolvency by catching the warning signs early on, and solving problems before they grow too big.

If you think your business is in financial trouble or have a client who may be, you may benefit from our free Guide to Options for Companies in Financial Difficulty.