What is solvency?

solvency

What is solvency?

During periods when demand for your goods and services drop – for example, if your business has been closed down or adversely affected by the recent COVID-19 outbreak – your sales and incoming cash receipts tend to drop at a faster rate than you are able to reduce your outgoings.

Expenses tend to fall into one of two groups:

  • Those that tend to vary in direct proportion to your sales: buying raw material or stock for resale, or
  • Fixed overheads: rents, rates, wages, and other recurring costs.

Variable costs can be reduced quickly once a downward sales trend is confirmed. Fixed costs can also be reduced but over a longer time period.

During a time when costs overtake income, losses occur. If losses are significant they may exhaust any reserves you have built up in your business. When this happens, you are in danger of becoming insolvent (liabilities exceeding assets).

Insolvency Act 1986

Consequently, if your business is experiencing a downturn, keeping your accounts up-to-date is of paramount importance. Most accounting software will produce a balance sheet and we can show you how to monitor this report to warn you of approaching insolvency.

Please call if you need help to organise your record keeping and we will provide you with the information you will need.

For more information, Book a Free Consultation

Our Offices

Makesworth Accountants in Harrow

Unit-101, First Floor,
Cervantes House, 5-9 Headstone Road,,
Harrow, London HA1 1PD
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Central London

63/66 Hatton Garden
Fifth Floor Suite 23,
Central London, London EC1N 8LE
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Ilford

Balfour Business Centre, Suite B15
390-392 High Road,
Ilford, London IG1 1BF
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Glasgow

Unit 103, Nasmyth Building, 60 Nasmyth Avenue, Scottish Enterprise
Technology Park,
East Killbridge, Glasgow G75 0QR
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Barnet

169 High Street,
Barnet, London EN5 5SU
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Need Accountancy Support?

For information on bespoke training, or if you have any other questions for Makesworth Accountant, please fill in your details below


    By submitting the form, you agree with the storage and handling of your data to contact you to arrange a free consultation with us and to receive latest updates by Makesworth Accountants in accordance with our Privacy Policy

    Proud to be featured in

    Happy with our services? Please leave us a Google Review. Click here