Early Warning Signs of Insolvency

Insolvency

The other week I wrote an article on what happens when things go wrong. Well today, I want to highlight some of the things that typically exist when things are starting to go wrong.

Detailed  below is a list typical warning signs:

  • Incurrence of trading loss
  • Slow debtor recoveries (shown by increase in debtor ageing) and increased bad debts
  • Suppliers have stopped supply or insist on COD terms only
  • Creditors outstanding beyond terms and increasing in value
  • Statutory creditors not paid on time e.g. Superannuation, GST, PAYG, payroll tax
  • Exceeding overdraft limit with bank (cheques perhaps being withheld or recorded as ‘unpresented’ until funds become available to clear cheques)
  • Legal action taken by creditors e.g. Collection agents, Statutory Demands.
  • Creditors being paid in part payments (i.e. round sum cheques being written out, cheques drawn to cash, etc.)
  • Cheques being dishonoured
  • Unpaid rent to landlord or unpaid lease payments to leasing company
  • Insurance – does not exist, is inadequate or is not up to date
  • The company has a working capital deficiency
  • Accounting records in disarray
  • Not complying with terms of loan facility

If your business is starting to evidence any of these signs, your business may be in trouble and therefore your livelihood, wealth and family may be at risk through potential failure of the business.

Your personal situation could also be at risk due to the ATO’s ability to transfer company debt to the individual in some circumstances and the fact that a director can be held personally liable for the debts of the company if the director continued to trade the business whilst it was insolvent.

If your business does exhibit these signs then you should urgently seek advice from a qualified professional.


Andrew Schwarz

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I am an accountant who is passionate about helping other people. My business AS Advisory specialises in helping business owners in the small to medium size business enterprise market solve business problems. Specialising in three main areas Operational Performance, Investigation and Quantification and Financial Distress. Having been a partner in National and International Accounting firms and been involved in a number of business as owner/advisor I have the skills and expertise to assist you.


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