10 Warning Signs Your Business May be Insolvent

| 6/7/2022

It is not uncommon for a business to experience financial hardship. The earlier you identify the underlying issues, the better the opportunity to fix them.

Crowe MacKay's insolvency experts help Canadian businesses with debt management. If you require assistance, connect with us in Alberta, British Columbia, Northwest Territories, or the Yukon.

While the below list is not exhaustive, some common warning signs of insolvency are:

1. Significant outstanding liabilities

As the saying goes “you need to spend money to make money”. Most business owners will try to stretch credit terms provided by their trade suppliers – that’s normal. But if you find you are unable to pay your creditors in a timely fashion, with particular emphasis on your employees, Canada Revenue Agency, secured creditors or lessors, and your landlord, this is likely a sign that your business is unable to settle its obligations in the ordinary course and may be insolvent. 

2. Substantial ongoing operating losses

Businesses, especially start-ups, often incur operating losses. Indeed, some businesses even plan to incur losses in order to, for example, gain market share. If you haven’t planned to incur losses, or worse – don’t know why your business is losing money – that’s a problem! Significant and ongoing losses erode working capital and, besides a negative number at the bottom of your income statement, will likely appear in issue #1 noted above.

3. Customer concentrations

Many businesses have a few really good customers which can be great. However, you need to consider the impact that losing a good customer could have on your business. Additionally, it’s one thing to lose a future sale but what if a major customer goes bankrupt and you have to write off a big account receivable? Concentrations of sales and accounts receivable can therefore lead to insolvency in the event of a loss of a significant customer.   

4. Employee turnover

Losing staff can be indicative of a host of issues. Has a competitor entered your market and is pilfering your best people? Does your staff see a problem that you don’t? High staff turnover is costly in terms of finding and training employees. Often new employees are not as initially efficient, make more mistakes, and may need to establish relationships with your customers – all of which can be costly and risky.   

5. Obsolete or slow-moving inventory

Inventory is often considered a necessary evil. Accordingly, good inventory management is critical. If you don’t have enough inventory you may lose out on a big sale; if you have too much you may be needlessly tying up cash resources that are better allocated elsewhere. Take a hard look at your inventory and consider how you can better manage it.  Maybe a special sale is in order to clean out some old, slow-moving stock.

6. Legal actions

Is your company involved in any legal actions either as plaintiff or defendant? Will you require the services of legal counsel? Lawyers are expensive and legal action of any kind takes your focus off running your business. It is usually best to try to resolve issues early before they fester and grow. Also, be mindful that in certain circumstances plaintiffs can seek court orders to freeze your assets or require that you pay funds into court. This will tie up your working capital for non-productive purposes.   

7. Growth

Growth is good, except when it’s not. Growing your business by increasing sales is generally the goal but you need to consider if those increased sales are profitable. Further, growth requires resources. Those extra sales may result in increased accounts receivable. In order to make those new sales, you may have to carry more inventory. This requires more cash. If you don’t have sufficient cash flow, unchecked growth will likely manifest in issue #1 noted previously.   

8. Lack of financial information

Many business owners treat the accounting function as an afterthought. They seem to think they intuitively know how their business is performing. However, the slide into insolvency is often slow and insidious; you think you’re making a profit but, in fact, are losing a little bit of money on every single transaction you make. Or you are making a gross profit but it’s being eroded by your administrative costs. Timely, accurate, and consistent financial information is critical to a well-functioning business. Keep an eye on those key performance indicators. Make friends with your accountant,  we’re nice people. 

9. Operating at the top of your credit line

Does your business have a credit line with a bank? Are you constantly operating either near or at the credit limit?  Often, we hear business owners say “I just need a bit more money!” But, needing more money may simply be a symptom of a more serious underlying issue such as a lack of profitability or failure to control costs. Before you try to rush out to apply for more credit, make sure you understand your business’s cash flows. Your trusted Crowe MacKay advisor can help with that. 

10. Angry Creditors

Are your trade suppliers cutting you off or otherwise requiring C.O.D. terms? Are you offside on your loan covenants with your bank? Has your bank moved you into its “Special Credit” department – in this case, “Special” isn’t good.  These are all indications of liquidity problems that can lead to insolvency. 

Seeking debt help

As with most problems in life, the earlier you identify and deal with them the better. Business failures are usually a result of a death by a thousand cuts. Like that squeak in your car, it will generally not get better on its own. It will take time, money, and knowledge to turn your business around. But bankruptcy is not inevitable. Other debt solutions and restructuring options exist if the underlying issues are identified and corrected early while resources are still available.  

Connect with Crowe MacKay’s Licensed Insolvency Trustees today to begin rebuilding your business’s financial foundation.


Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Contact your Crowe MacKay advisor for more information.

If you require corporate or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.

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Derek Lai
Partner, Incorporated, Senior Vice President, Crowe MacKay & Company Ltd.
Jonathan McNair
Jonathan McNair

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