Warning Signs of Insolvency

A business (sole proprietorship, partnership or incorporation) is insolvent if it cannot meet its financial obligations generally as they become due. Therefore it is important to recognize the danger signals. If some of the following scenarios are familiar to you, you may have a debt problem or are heading towards one.

• undercapitalization
• history of losses
• an increased level of bank debt, violations of covenants, or defaults
• a decreasing asset base
• decreasing sales and decreasing gross profit
• increased fixed costs relative to profit
• accounts receivable and inventory decreasing at a rate faster than reductions in current liabilities
• large bad debt losses
• large order cancellations
• a lack of management depth
• internal problems
• over-expansion
• payment only of interest or service charges without reducing the principal on debt
• harassment for payment by creditors or collection agencies, including judgements and garnishees
• falling into arrears with your landlord and
• falling into arrears with government trust funds (ie: employee source deductions, PST, GST, or WSIB (WCB) payments).