Frequently asked questions
How do I know if my company is solvent?
There are two solvency tests that can be applied to assess a company’s financial viability.
1. The cash-flow test
Carry out an in-depth audit of your cash flow. Simply put, this involves listing out the different types of income that your business has and then listing the expenses. If you can pay staff, suppliers, HMRC, creditors, etc. on time and in full in the long-term then your business is solvent.
For help creating your cash-flow forecast, download our guide.
2. The balance-sheet test
The balance-sheet test weighs your assets against your liabilities. Calculate all your assets (stock, premises, equipment, monies owed, cash in the bank) against your liabilities (debts to suppliers, your bank or other creditors).
It’s important that you don’t underestimate or overestimate your assets and liabilities. You need a true picture of your company’s position to decide on the best course of action.
Appointing an licensed insolvency practitioner might be a good idea at this stage, so they can help you decide on the best solution. If you’re ready to start this process, contact us .
What is solvent liquidation?
Solvent liquidation is also known as Members’ Voluntary Liquidation or MVL. While other liquidation processes take place because a company cannot meet its financial obligations through insolvency, this does not. The common reasons for a solvent liquidation are if the owner is retiring and there is no one to take over. The business now has no purpose to exist. Or if a contractor is ‘winding up’ their company to take a full-time role. There can be tax benefits to ‘winding up’ a company this way, depending on the circumstances. To discuss your solvent liquidation, contact us .
What is a Members’ Voluntary Liquidation (MVL)?
Members’ Voluntary Liquidation or MVL is a way to close a solvent company. It is a formal, legal process used when there are no debt liabilities but the directors and shareholders want to ‘wind up’ the company. You can learn more about MVL on our solvent liquidation page.