The Importance Of Solvency And Business Operations
Business owners work hard to make the right decisions that will help their operations thrive and prosper. Owning a business means having to wear several hats at once and figure out solutions to major problems that could affect the running of the business. One of the biggest issues that a business owner has to take care of is that of their finances. After all, if a business does not have a positive cash flow, they are unlikely to be able to keep their doors open for very long.
If you live in New York and your business is struggling to manage its finances, this is undoubtedly a tense and taxing circumstance to be in. Wondering how to remedy your situation can be a major challenge as you weigh your options or if you are unsure what your options are. Harry D. Lewis is a New York business bankruptcy attorney that can help you effectively navigate your unique situation to ultimately, secure the most favorable outcome.
What is Business Solvency?
Businesses have to be able to pay their bills and other financial obligations to function and operate without issue. A business is considered solvent when it has adequate assets to pay for its liabilities. When a business is solvent, it is better positioned to stay afloat and continue to operate.
When a business does not have the assets available that it can use to meet its liabilities, this is not good. Insolvency is a death sentence for a business.
To figure out a business’s solvency, calculate the total cost of all liabilities such as taxes, repaying loans, employee expenses, etc., and compare this number against established assets. If there is a 2:1 ratio, meaning, the business has at least two times the assets as it does its liabilities then it is solvent.
If not, then the business should at least have enough assets to equal its liabilities. In this situation, it can also be considered solvent.
But, if there is a higher amount of liabilities to assets, then the business is insolvent and this will affect the business’s ability to figure out ways to pay its obligations. This includes difficulties that come with trying to secure loans for financial stability. Banks are going to be less likely to provide a loan to a business with excessive debt that is over and beyond its assets.
Solvency is one of the long-term measures that businesses should think about as they run their operations. Businesses that are not solvent will face substantial issues trying to continue operations and keep their doors open. When this happens, figuring out how to overcome debt is next. Business bankruptcy may be appropriate. The type of bankruptcy filing a business uses to manage debt will depend on the amount of debt that has accumulated and the prospects the business has to pay it back.
Speak to a New York Business Bankruptcy Attorney Today
Businesses in New York that are facing financial woes can speak to Harry D. Lewis for legal guidance and counsel regarding what to do to remedy their situation. To schedule a free consultation with the New York business bankruptcy lawyers at the Law Office of Harry D. Lewis, please call 212-859-5067.