Is my Business Insolvent? 5 Signs of Insolvency

Are you a business owner that have asked yourself "Is my business insolvent"?

If so, there are some warning signs that your business may need a little restructuring to both resolve your current issues and prevent more from occurring in the future.

These warning signs may be obvious or subtle, but it is important that regardless of what they look like, you can observe and act on them in minimal time.

That way, you can avoid damage being done to various aspects of your business, both now and in the future.

In this article our collection agency for small business will discuss 5 of the warning signs your business requires restructuring and what the signs may mean.

Is my Business Insolvent - Poor Cash Flow

A warning sign that your business may need to consider restructuring is if you find your cash flow consistently poor.

If low cash flow is a constant occurrence in your business, restructuring may be a way that you can get it back up to where it needs to be.

Cash flow is defined as the money that moves both in and out of a business and is vital to the profit and general continuation of a company.

Cash flow is not necessarily only affected by sales, but other factors such as expenses or not collecting adequate revenue can influence the profit your business is making overall.

Poor or negative cash flow can threaten the solvency of your business and prevent any form of growth, meaning failure to increase it can prevent your company from continuing to operate.

By restructuring, you can face this issue head-on and prevent cash flow issues from sending your business to insolvency!

Is my Business Insolvent - Reliance on Loans

Another sign that it is time to consider restructuring your business is if you have observed a dependency on debts to keep the doors open.

Every business interacts to some extent with debts and creditors. It is simply an unavoidable part of running a business, especially when you are first starting out.

However, it becomes an issue when you are relying entirely on debts and loans to keep your business alive and functioning.

Incurring profit from customers is one of the main goals of a business and finding yourself not being able to afford to keep your business running without borrowed money suggests that not only are you not making a profit, but you are not making enough to pay for the products/service and the space you are occupying.

Your business restructuring, in this particular circumstance, should focus predominately on obtaining new customers or earning more money in other ways.

Is my Business Insolvent - Runaway Expenses

Runaway expenses are another red flag in business that may mean that you need to begin the restructuring process in order to keep it open.

Runaway costs are practically expenses that are uncontrolled by yourself or the business in general.

These costs can be quite random and sometimes expensive, so you must ensure you are adequately planning for such expenses.

The restructuring process would likely serve the purpose of financial aid and planning in case of runaway costs so that you are properly prepared for future events.

You may consider putting in place an emergency fund if you haven’t done so already.

An emergency fund is a vital part of maintaining a business, as it contains funds of money for circumstances you cannot plan for.

You should save as much as possible in the emergency fund, so you have flexibility in future emergencies.

Lack of Efficiency may mean Insolvency

Another sign that your business may be in need of restructuring is if you are finding that it is lacking in efficiency.

Poor efficiency is generally a symptom of other issues, such as poor planning or issues within your business design or structure.

Efficiency can also negatively affect your business's reputation, as most consumers are looking for their products or services in the least amount of time possible.

Unfortunately, there are several areas within your business that can influence efficiency of your business, so you may have to restructure or at least look into several aspects of your company.

It may root of the costs, operations, employees, business structure, or other areas of the functioning of your company.

This may mean you have to hire new staff, refinance, or simply look into your operations to see where the issue is routing from.

Is my Business Insolvent - A Decline in Sales

A drop in sales is one of the most obvious and urgent signs that your company needs restructuring.

All businesses rely on customers. They provide the funding, profit, reviews, recommendations, and sales that you need to function as a company.

After all, what is a business without customers and sales?

Well, if you have observed fewer and fewer customers or lower sales overall, it is time to consider making internal changes to improve these aspects.

A simple review of your operations to see where issues may be coming from can be extremely beneficial.

Once this issue has been identified, be sure to take immediate action to prevent insolvency!

It is important to remember, however, that businesses go through waves and sales may not always match up to what they were the month or even the week before.

Consider Debt Collection

Businesses and debts can be difficult to manage. Many of the issues above route from money management and cash flow issues.

This can all be changed by simply engaging the assistance of a debt collection agency or business.

Debt collectors will take all of the work of locating and following up on debtors off your hands, so you can focus on the other aspects of the business.

Furthermore, the tools and experience a debt collector will have are likely much more effective than what you can do as a business owner.

They can, therefore, retrieve payment from a debtor in significantly less time and much more effectively than you may be able to.

With all of the aspects of a business you need to manage, why not let a debt collector take the extra effort off of your hands?

Key Takeaways

As a business owner, there will be many aspects of business that you will simply have to manage.

With this in mind, it is important that you are consistently checking over your business to ensure all is smooth sailing to avoid potential problems going unseen and causing larger issues down the road.

Once you have observed one or multiple issues in your business structure, you must take action as soon as you possibly can, or else risk your business entirely!

Do you have unpaid business invoices and need to increase cash flow?