Financial debt makes things difficult, personally and in business. Being aware of the signs can help you take control. Our Bankruptcy Firm specializes in personal bankruptcy, however if you own a business or are in control of the finances in a business it’s important to know the signs of financial distress.
There can be both internal and external causes for a company’s financial distress. It occurs when there is difficulty paying off financial obligations to creditors.
If financial distress can’t be relieved, it can lead to bankruptcy.
One obvious indicator of distress is poor profits. When a business can’t sustain itself from internal funds, it may be forced to raise capital externally. This can increase risk and lower creditworthiness with creditors, suppliers, and investors. If it comes to the point of the banks limiting access to funds, it could be eventual failure.
Along with poor profits comes poor sales. A company could be experiencing a decline in growth in spite of multiple marketing activities. This could be a sign that the market isn’t satisfied with the products or service.
This should be closely examined and evaluated. It certainly impacts cash flow, making it negative with more money going out than is being generated. Slow paying customers certainly don’t help the situation. It limits the ability to pay creditors on time.
Should the company’s financial dependency be primarily on a couple of customers, it becomes devastating. If things don’t turn around, the business would be in serious trouble, with a doubtful future. The ratio between a company’s assets and current liabilities should always be greater than one. Any time it is less, there’s trouble.
A relationship between a business and the bank is an important one. Once it’s strained, distress sets in. This begins to arise when companies ask for additional security and personal guarantees. It strains more by withdrawing overdrafts and declined loans. At this point the business’ creditworthiness is eroded. The situation may now involve repeatedly borrowing the capital from investors, which pushes the limits with other relationships.
Finally, there may be managerial signals of financial distress. Problems are inevitable when there is an inexperienced management team with weak financial and organizational skills. This is intensified if there is also a lack of knowledge regarding finances and the business in general.
It is important to be aware of the various symptoms of financial distress. Prompt action is necessary to secure the future of the company. There is a need for innovative solutions to guide the business toward becoming efficient, competitive, and relevant.
If being in financial distress is affecting your personal finances, Hines Law can help. Our Full-Service Legal Firm handles all types of personal debt relief matters. Throughout the years, we have been privileged to serve clients in Framingham, Watertown, Westborough, Worcester, Leominster, and beyond.
Our expertise includes Chapter 7 and Chapter 13 filing as well as assisting our clients implement a plan to rebuild their future. Experience and extensive knowledge in bankruptcy is at the core of our practice and our commitment is to safeguard your interests and your future by providing the right solution for your bankruptcy case.
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