Before making any decisions, you need to understand where you actually stand. This means looking honestly at your business's financial position and asking some hard questions.
Signs of trouble
Financial difficulty rarely arrives suddenly. Usually there are warning signs that build over time. Recognising them early gives you more options.
Common warning signs:
- - Delaying payments to suppliers or relying on extended terms
- - Unable to pay taxes when due (GST, PAYE)
- - Regularly at or over bank facility limits
- - Creditors calling for payment or threatening action
- - Relying on new sales to pay for existing obligations
- - Unable to fund necessary capital expenditure
Cash flow vs balance sheet insolvency
There are two ways a company can be insolvent, and they require different responses.
Cash flow insolvency
You cannot pay your debts as they fall due. This is the test that matters most in law. Even a profitable business with valuable assets can fail this test if it runs out of cash at the wrong time.
Balance sheet insolvency
Your liabilities exceed your assets. This matters, but a company can be balance sheet insolvent and still trade successfully if it can meet its obligations when they fall due.
Taking stock
Understanding your position requires gathering accurate information. This is not about making yourself feel bad - it is about making informed decisions.
Key questions to answer:
- - What do you owe and to whom? When is it due?
- - What are your assets worth? What security is over them?
- - What is your cash position? When will you run out?
- - Is the underlying business viable if the debt burden is addressed?
Who should you talk to?
This is not a situation to navigate alone. At minimum, you should be talking to your accountant and a lawyer who understands insolvency. Your accountant can help you understand the financial position accurately. A lawyer can explain your obligations and options.
All conversations are confidential
Professional privilege means your discussions with your lawyer are confidential. You can explore your situation and options without public disclosure. This is one reason to get legal advice early.
What we do at this stage
We help you understand your actual position - not to judge, but so you can make informed decisions. We explain what the law requires and what options might be available given your circumstances.