A business does not become insolvent all of a sudden. It shows certain early signs that predict that it can become bankrupt shortly. The business must be aware of these signs to take proper measures at the right time.
This is the way to save itself from insolvency. We have compiled a list of signs that gives an indication of the solvency of a business.
Reasons for ignoring early warning indications of insolvency
Many businesses that became insolvent have not taken the early signs of insolvency seriously. This can be because of the following reasons:
- They do not learn about the severity of the situation. They thought that there is no problem.
- They realize it is a problem but hoping for the situation to become normal again.
- They realized the problem but did not take measures to deal with it.
Financial problems can become undefeatable at times. Failing to get the much-needed financial support from a professional can lead to business failure.
The Insolvency Experts is the best place by which a business can gain free insolvency advice round the clock. The licensed professionals at this company provide specialized solutions to help business overcome their challenging financial situations in less time.
Early warning signs of insolvency
You are not able to fulfill your upcoming superannuation payments
For non-payment of superannuation and PAYG Tax, a business can receive a DPN (Director Penalty Notice) from the ATO. Receipt of this notice makes a business personally liable for the debts.
Failing to fulfill more than one ATO payment in short duration
Getting a payment arrangement with creditors will look like a great method to ease monetary pressure on the business. Not adhering with an agreed arrangement, can make your business insolvent.
Lack of adequate funds to pay off all the creditors
If you do not have sufficient funds to pay off your creditors in their required terms of payment, then it is the early indication of insolvency.
You are receiving constant demands and reminders for payment from creditors
If your creditors are following up with you to clear their payment, or getting letters of demand from agents, or creditors, then it is a key sign that your business is not doing well and can turn bankrupt in the future if proper measures are not taken soon.
You lend money to your company to fulfill amounts owed to creditors
If you have to continuously lend money to the company so that it pays to its creditors, and has adequate funds to keep trading, then this is another indication that critical financial issues exist in your business.
Your business transaction records are a complete mess
If you are not able to track business records and prepare precise financial statements, then you need to discuss this matter with your accountant to get everything in order.
It is important for a business that faces a financial crisis to remain watchful of these signs and take quick actions at an early stage to save it from becoming insolvent.