Partnership law firm – cashflow problems
If you are practising as a partnership you are of course jointly and severally liable for the business and personal debts you have built up. What should you do if the practice is struggling?
First thing to do is to establish if you are insolvent. See the 3 tests below:
The Cashflow Test
Simply – can your practice pay its debts as and when they fall due for payment? Are you as an individual partner in cashflow difficulties with aggressive creditors? This too may cause problems for the partnership.
For example if you are not paying the deductions from employees for NIC and Income Tax across to the HMRC on the 19th of the month following the month they were deducted, then your partnership may be insolvent. Have you met loan repayment dates for practice loans or bank loans?
If your trade creditors sell to you on say 30 days terms and you regularly pay on 90+ days, then you may be insolvent.
The Balance Sheet Test
Simply does your partnership owe more than it owns, or are your business assets exceeded by your business liabilities? If yes, then you are insolvent.
It is important to point out that this test should include contingent or prospective liabilities. (If you need advice on these issues email us).
The Legal Action Test
If a creditor has obtained a County Court Judgment, this may demonstrate your partnerships insolvency and the creditor may petition to wind up the partnership.
If a creditor has obtained a statutory demand for greater than 750 and it remains unpaid for more than 21 days, then the creditor may petition to wind up the partnership.
Second thing to do is to use our free daily cashflow spreadsheet (EASY TO USE) and set out the expected cashflow in and out of the business over the next few months.
If you need any advice on filling this out we will provide this free of charge. Please call 0845 5194930
This tool will set out what the likely cash position is in the business over the next few months and will help YOU decide which is the most appropriate option. If cash is drying up and there is no way to fix it then winding up the partnership and possible personal bankruptcy could be the option to study see Plan C below.
If cash is tight but still flowing then Plan A or B should be considered. If you know that good cashflow is coming through in the next few months then Plan A can be a powerful way to buy that time.
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