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Is my business insolvent?

Is my business insolvent?

Everyone who runs a business has experienced money worries at some point. It’s all part of managing a company. The good times and bad times come and go, but you always somehow manage to get through. However, if you can’t see the end of the bad times, and the cashflow is constantly worrying you or getting critical, you may find yourself wondering if you are insolvent.

There is a technical explanation of when your business could be considered insolvent at the bottom of the page but we suggest you don’t jump ahead. It’s important to understand your situation in context. Take the time to read through this page and then call us so we can assess where you actually stand. Until then, remember that things may not be as bad as you suspect. Sadly, it may also be that they are, but either way you need help and planning to see you through to the best possible result.

If the pandemic has taught us anything, it is you never really know what is coming next. Being in business has never been a sure thing and insolvency can happen for many reasons. Right now though, all that can wait until we have a full picture.


First, let’s look at some insolvency warning signs.

HMRC Arrears.

For most companies who come to us for help, the first creditor they struggled to keep up to date with was HMRC. There is a difference between being a couple of days late and being a few months in arrears. If you are the latter it is telling you that the Company has a problem.

Constant Cash Flow Issues.

Are you are always up against your overdraft limit? Most of us have facilities to see us through while we are waiting for payments at the end of the month. It’s also pretty common to have a buffer of 3 months when the VAT payment is due. If you are against your limit all the time though, or you have bounced payments etc, the Company has a problem.

Creditor Pressure.

If one or more of your creditors are threatening to take legal action against you it is a sign that the Company has problems and you need to take advice as soon as possible. 

Bounce Back Loans / CBILS or other loans.

We fully appreciate that you may have taken these out with the expectation that when the good times return, things would be OK. If you have reached the stage where the first payment is due but you are struggling to pay it, you need to consider your options.

The 2 am worry wake up.

We all wake up at night and find ourselves thinking about business issues. However, if money concerns are on your mind so much that you can’t sleep properly, it is a sure sign that you need help.

So, what is insolvency?

As mentioned above, there are 2 common tests that will indicate a Company is insolvent.

The first is the ‘cashflow test’. This is a simple question. Can you pay your creditors as and when they fall due?

The second is more complex and is called the ‘balance sheet test’. If you look at the value of your assets and knock off the liabilities, do you have a positive or negative value at the end?

If the answer to any of the above gives you cause for concern, it is possible that the Company may well be insolvent. However, things are rarely simple as the number on the page and it still may not be beyond rescue! Before you do anything else take a look around our site. We have lots of free information on what to do if you think you are insolvent.

The best thing to do if you are not sure where you stand is to book a telephone call with us. We will be happy to call you back and talk through your position. We are here to help.


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