How Do You Determine If A Company Is Insolvent?

Insolvent means the inability to pay back any remaining debts, whether it be personal or business debts

Insolvent means the inability to pay back any remaining debts, whether it be personal or business debts

In order to determine if a company is insolvent or not, you need to understand what insolvent means. Insolvent means the inability to pay back any remaining debts, whether it be personal or business debts. When you think a company has become insolvent, it does not mean it is the end of the world. Life does go on and the company can recover in some way.

A company can become insolvent for different reasons, but how can you determine if they are insolvent? To Be Insolvent or Not to be, that is the question on every declining company holders mind. The simple tips below can give you an insight on determining this issue. Stick with these tips and they won't fail you.

What you should be asking yourself:

  1. Is the company making a profit? This may seem like a simple question but very rarely is it asked. A company may be (barely) paying their bills and employees but are they turning a profit? A company needs to be earning enough money to pay their employees, bills, lenders as well as gaining a profit.
  2. Have any debt collectors or court orders papers been delivered? Debt collectors can be ruthless but no one should mess with the law. If a company is having difficulty paying their debt or not responding to court orders, then they are in trouble.
  3. Check their balance sheet Does the business owe more money than they have or can pay? Some companies can have a bad month or quarter, but if a Insolvency Expert company owes more than they own, then they are heading towards insolvency.
  4. Is cash flow a problem? The company is barely paying the necessities but does not have any left over to pay their debts. Making regular payments is a good sign, but if a company starts making late payments or stops paying their lenders that are not a good sign.
  5. Do the company have a good support system? Just like a family, having a good support system is a key factor in a company. A company should be on good terms with their bank, lenders, and employees. But if the banks keep declining the company's loan requests and the employees start quitting, then trouble is in the air. A good support system should be able to back up a company in times of need, but if ties have been severed then it is time to face reality.

DCL Advisory has some of the best professionals working for them. You will receive optimal care and reassurance knowing that their top CPA Sydney professionals have at least 15 years’ experience in their fields. Hopefully reading these tips have helped you. So if you think that your company may be insolvent, look into DCL Advisory on how to get the best help available.

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