3 Indicators That Your Company is Insolvent

Your cash flow has taken a negative dive and your company is knee deep in debt. How do you get out of it? It just seems to be getting worse and the bills keep coming and your creditors are knocking ominously at your door. How does a business know that it is in dire straits and desperately wanting financial help?

Businesses and debt go hand in hand. All companies have to manage debt in order to run their business. Unless they have cash up front, all businesses need to borrow money to obtain the tools and assets to keep their business going. It may be a start-up loan or a loan to expand. Whatever the reason being in debt in business is normal. The problem occurs when the debt is not relieved by incoming funds from the business for a prolonged period of time.

1. Financial statement

How does such a business get out of such a situation? The first step would be realizing that it's in such a critical state, and realize this before it’s too late. One place to see this is the company's financial statement. Businesses that have spent money on too many non-profitable items will eventually find themselves in debt. Is too much money being spent on wasted business trips or is the new “Chili Burger Deal”  not making as much money as was anticipated and it's still on the menu anyway?  Losses such as overpaid employees and excessive perks to senior managers, or failed market expansions need to be identified and dealt with. It is essential to know where is money leaking and why is money not being made.

2. Late payments

Another indicator that a company is going belly up is when payment of bills and suppliers are late. Angry suppliers and utility companies mean that the company is deficient and unable to function and carry out its day to day operations and requires help. In the same line of this a business will start to find it difficult to pay its loans as the expenditures start mounting.

3. Negative customer reviews and unhappy employees

Bad customer reviews and reactions to your company are also symptomatic of the insolvent company that is in crisis. A company cannot survive without satisfied customers. Customer satisfaction is critical for growing your business, which also means financial stability. Unhappy workers who have not been paid on time, or whose bonuses have been cut, signify a business that is in the first stages of debt.

If your company has all the above indicators, it is time to face financial issues and find solutions that will work in the long run.

Image source

Jasmila

About Jasmila

I am an English teacher. Writing is my passion

Jasmila