Without careful business planning, your company could be at risk for insolvency. Learn the warning signs of an insolvent business and think ahead to keep the company running.

What Is Insolvency?

Insolvency means that your company cannot pay its debts on time or has liabilities that exceed its assets. In The Bahamas, insolvent companies may need to wind up (liquidate assets to pay creditors and dissolve the company).

Dangers of Insolvency

If your business becomes insolvent, creditors could ask the court to wind up the business. This is known as a compulsory winding up. You will receive notice that a creditor or creditor(s) seek to wind up the business, so you have time to retain legal counsel and assess your options. Sometimes the best option is to wind up the company; other times you may strike a deal with creditors to pay a portion of the company's debt.

Warning Signs

Warning signs of impending insolvency, if noticed in time, can alert you to save your company. You may notice that unpaid bills are mounting or you have many outstanding invoices to customers. Also, you may have just received a large loan or mortgage that must be paid over a short period of time. Further, you may have lots of unnecessary inventory or too many orders for inventory on hand. Finally, your financial statements may show that the value of your company's assets is only slightly higher than the liabilities on the books, such as debts and loans.

Thinking Ahead

Companies in good operating condition take a few key steps that keep them current on debts and keep liabilities under control. They challenge any debts that seem incorrect rather than letting them sit on the books with payment delinquent. Also, they invoice customers regularly and follow up to obtain payment. This provides steady income from repeat customers and influxes of cash from one-time customers. These companies do not accept more orders than they can fulfill with resources on hand, and they do not keep unneeded stock.

Depending on your company's industry and needs, there may be other ways to reduce the risk of insolvency.

To find out more about insolvency strategies in The Bahamas, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.