A company that is insolvent is one in which the company assets are less than the liabilities. If a company has many debts that it cannot pay on time, the company directors should consider if it is time to declare the company as insolvent.

Of course, there are many ways a company can reduce some of the debt by taking some actions such as restructuring. If a company is not quite at the point of going bankrupt, many insolvency practitioners can help that company become solvent again by reorganising the management and its operations.

How Can I Know That My Business Is Insolvent?

There are two simple methods to see if a company might be insolvent. One of those methods is the cash-flow test, which consists of verifying if the company can repay its creditors in the specified amount of time. For example, if a supplier gives you a period of 45 days to pay your bills and the payment can be made only in 90 days then this may be a sign that the company may be insolvent.

Another way to see if a company might be insolvent is the balance sheet test. Here, a director can see if the value of the assets is lower than the value of liabilities.

What to Do?
The director of the company or insolvency practitioner contacts all the creditors to see if they can reach an agreement regarding the payments that are overdue. This allows the company to continue to function and still pay the debts in a specified amount of time.

There are a large number of businesses that are being saved because the owners of the company are determined and willing to make some sacrifices. A good strategy and a positive attitude are also good ways to save a company. Seeking professional advice is not something to be ashamed of, if it can save the company and make it solvent again.