Insolvency is a financial state in which a person or organization becomes unable to pay its debts. Insolvency may result from poor financial management, business failures, adverse economic conditions, or other external factors. A person or organization can be said to be insolvent if they cannot pay the money they owe to creditors when due.

The following warning signs can help you determine if your company is on the road to insolvency.

1. Running out of cash, where the business cannot fund its normal running costs;
2. Payments to suppliers and employees are higher than receipts from customers (more money out than in)
3. Evidence of a breakdown in internal controls, such as missing paperwork, unorganized desks and misfiled documents;
4. Financial reports not provided to management or provided late;
5. Lenders withdrawing support;
6. Delaying payments to creditors, including salaries to staff;
7. Regularly requesting extensions to due dates for payments;
8. Evidence of negligent or incompetent management;
9. Lack of risk management planning;
10. Internal bookkeeping not up to date e.g. bank reconciliations;
11. Incomplete financial records;
12. Absence of a business plan;
13. Lack of cash flow forecasts or other budgets.

If you're an owner or even just a manager of a business, it is important that you know and understands the strong signs which act as warning indicators of your potentially failing business. If any one of these  major warning signs presented itself to you, there is a real danger that your business may ultimately suffer insolvency. The early detection and detection of these warning signs could ultimately be the difference between saving or losing your business. So, it is vital that you are able to spot them and act quickly in order to diminish their negative impact on your business.

If you want to take control of your cashflow and build better systems so that you are less at risk of insolvency, then please join us for our fortnightly Profit First cash management sessions, where you can hear some tools and techniques to better manage your cashflow.

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