In most cases, a business doesn’t go from being profitable to being insolvent overnight. If you’re busy with the day-to-day running of the business, you might miss the early warning signs that you’re heading for financial trouble.
If you’re seeing the early warning signs of financial trouble, you need to take action. Ignoring your problems and hoping they’ll go away won’t work because these issues don’t normally fix themselves. We see a lot of businesses that stop paying the IRD when things start getting tight, in the hope of gaining some breathing room. Unfortunately, while the IRD is not usually your most vocal creditor, the penalties that the IRD can add to your debt are significant and, if you do nothing, your debt can easily become too big to repay. If your payments to the IRD are not up to date, we recommend that you contact the IRD and work out a repayment arrangement to sort out your tax arrears. Our business health check might point you in the right direction to addressing what you need to change.
If you’re already in financial trouble, you need to address your cash flow issues urgently. You will need to take a hard look at your business, get an accurate picture of your financial position, and find out what has caused your cashflow problems. Your accountant or an insolvency practitioner can help you with this review and can advise you on restructuring and/or refinancing options for your company. You can find out more about business restructuring options in our articles on our website.
Once you have a turnaround strategy, you can speak to your bank about whether you can borrow more money – if you can, make sure you can afford the repayments – or whether it’s possible to refinance your current debts so that you’re paying less to service them. You will also need to address any IRD arrears.
If your company is or could be insolvent, you need to speak to an insolvency practitioner as soon as possible to see whether it’s possible to restructure your business and avoid having your company put into liquidation by a creditor. You will also need to consider whether you are complying with your director’s duties and, if you’re not, what you can do to remedy any breaches.
An external account or business advisor is often one of the first people to pick up that something in your business may not be quite right. If you’re worried about your business, speak to someone about it and get it sorted.