How can I detect insolvency in my company at an early stage?
May 8, 2022 | 40,00 EUR | answered by Erwin Hausdorf
Dear bankruptcy lawyer,
My name is Mia Dörr and I run a small business. In recent months, I have noticed that it is becoming increasingly difficult to cover the ongoing costs financially. Revenues are declining and profits are shrinking. I am concerned that my company is heading towards insolvency and therefore want to take preventive measures early.
Currently, I am facing the challenge of assessing the financial situation of my company correctly. How can I recognize early on if my company is threatened by insolvency? What signs can I look for to indicate that the financial situation is becoming critical and insolvency may be looming?
I would like to know what signs point to a looming insolvency and what actions I can take to protect my company from insolvency. Are there specific key figures or indicators that I should pay particular attention to? What steps can I take to recognize and possibly prevent the risk of insolvency early on?
I would greatly appreciate it if you could provide me with some tips and advice on how to protect my company from insolvency. Thank you in advance for your help.
Sincerely,
Mia Dörr
Dear Mrs. Dörr,
Thank you for your inquiry and your trust in my expertise in the field of insolvency law. It is understandable that you are concerned about the financial situation of your company and want to take early measures to prevent a looming insolvency. Indeed, it is important to assess the financial situation of your company correctly and to recognize warning signs early on.
There are various indicators to look out for in order to identify a potential insolvency early. Some of the most common indicators include:
1. Liquidity shortages: If your company is having difficulties paying bills or wages on time, this could be an initial sign of financial problems.
2. Declining revenues and profits: If revenues are consistently decreasing and profits are shrinking, this could indicate an unhealthy financial situation.
3. Deterioration of payment behavior: If your customers increasingly exceed payment deadlines or fail to make payments, this can affect the liquidity of your company.
4. High debt: High debt and excessive credit lines can lead to an overload of your company's financial situation.
To identify and possibly prevent the risk of insolvency early on, you should regularly analyze your financial data and pay attention to certain key figures. These include liquidity ratios, debt ratios, equity ratios, and profitability ratios. If these key figures reach critical values or deteriorate, prompt action should be taken.
To protect your company from insolvency, you should take early measures to stabilize the financial situation. These measures include:
1. Creating a liquidity plan: Regularly review your cash flow forecasts and adjust them to identify liquidity shortages early on.
2. Cost reduction: Review your expenses and identify potential cost-saving opportunities to reduce expenses.
3. Improvement of payment behavior: Set clear payment deadlines and regularly monitor incoming payments to improve liquidity.
4. Negotiation with creditors: Initiate discussions with your creditors to arrange possible payment deferrals or installment payments.
It is important to seek professional help early on to prevent a looming insolvency. An experienced insolvency lawyer can assist you in analyzing your financial data, help you create restructuring plans, and provide advice on negotiations with creditors.
I hope these tips are helpful to you and I am available for further questions. Thank you for your inquiry and best wishes for the future of your company.
Sincerely,
Erwin Hausdorf
Insolvency Law Attorney
