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Insolvency Warning Signs

Insolvency warning signs for Limited and Sole Trader Companies

Insolvency warning signs can be seen in multiple aspects of a business but there are two clear tests to use to determine if further help and advice is required.

Cash Flow Test

A technical term of insolvency is that you are unable to pay creditors and suppliers in full as and when their invoices are due.

This is down to lack of working capital within the company which is affecting the cash flow. This can be affected in many ways which is why keeping a close eye on a company’s cash flow is an integral aspect in running a business.

Balance Sheet Test

A practical term of insolvency is that the balance sheet shows higher liabilities then assets within a company.

This may be down to mis management, lack of cash flow, lack of customers etc.

These two tests alone do not determine continuous insolvency, but they are indicators that further help and advice should be sought in order to clear up any issues that may be causing the failure of either of the above.

We have discussed multiple insolvency warning signs in the below pages. Please remember that individually they may not determine continuous insolvency, but if you are dealing with any of the issues discussed, it is worth finding out more on how to tackle them.

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