Business Losses: Indicators to Keep an Eye On

A company’s financial performance relies on a series of key indicators to assess signs of vulnerability. For companies experiencing accumulating losses in their financial statements, it is crucial to act quickly. To prevent a crisis situation, the intervention of an authorized trustee in insolvency may be required.

The analysis of your company’s financial situation

Financial statements reflect your company’s performance. By understanding your financial statements, you can make informed decisions to stabilize or optimize your company’s financial situation. The two most important elements to examine are the balance sheet and the income statement.

The balance sheet

The balance sheet presents a company’s financial situation at a given point in time. It is divided into two main sections: assets and liabilities.

Assets include all the goods and resources owned by the company, such as cash, equipment and accounts receivable. Liabilities include all debts and obligations, such as loans, accounts payables and sums payables to tax authorities (DAS, GST-PST).

The balance sheet helps us see if a company can pay its debts. It shows if its assets are enough to cover its liabilities over time.

The income statement

The income statement presents a company’s financial performance over a given period in time. It summarizes the sales generated by the company, as well as the expenses incurred to obtain them. The aim is to determine the net profits made during the operating cycle. This statement allows the determination of the company’s profitability by comparing its revenues and costs.

Which key indicators do you need to keep an eye on ?

Financial performance indicators provide a clear picture of your company’s short-term financial health. These indicators also enable you to measure performance in order to anticipate and avoid financial difficulties.

Debt-to-equity ratio

The debt-to-equity ratio monitors the proportion of debt to equity. A high level of debt, combined with recurring losses, increases a company’s financial risk.

Gross margin

Gross margin represents the difference between sales revenue and cost of goods sold. It is an essential indicator for assessing the viability of core activities.

A declining gross margin could signal competitiveness problems or poor cost control. A declining gross margin will lead to increasing losses if it is not rectified quickly.

Break-even point

The break-even point indicates the minimum sales figure required to cover all costs. When a company fails to reach this threshold, it means it is operating at a loss. It’s a good indicator to determine whether cost-cutting or sales-increasing strategies are necessary.

Cash flows

Cash flow shows whether a company is generating sufficient liquidity to finance its day-to-day operations. Negative cash flow, especially if it persists, is often a warning sign of serious financial difficulties. It is important to monitor cash flow to anticipate cash requirements and avoid hasty decisions.

What to do when repeated losses hit your business ?

When losses pile up on tax returns, it’s imperative to act quickly. A trustee can help you find suitable solutions, such as commercial bankruptcy or a business proposal. If you have lost money on your financial statements for two years in a row, it’s time to find ways to manage your debts better.

Business proposal

A Business proposal is a legal procedure carried out by an authorized trustee. It enables a company in financial difficulty to negotiate with its creditors. By drawing up a repayment or debt reorganization plan, this procedure enables them to avoid bankruptcy.  It offers the company the possibility of continuing its activities while settling its debts under new, more advantageous conditions.

Commercial bankruptcy

Commercial bankruptcy is a legal procedure that occurs when a company is unable to repay its debts. Its financial situation must be irremediably compromised. It generally involves liquidating the company’s assets to pay creditors as far as possible.

Commercial bankruptcy has its consequences, but it can allow the company to free itself from insurmountable debts… However, owners need to be aware that bankruptcy can lead to a loss of assets and an impact on their reputation.