There’s a really simple question that every business board should ask itself at each board meeting – and even the smallest company should have at least one board meeting a year, and preferably one a quarter, particularly in these difficult times…
By asking this question and minuting it with the responses from the board member(s), you substantially lessen the risk of being held personally liable for reckless trading, and thus responsible for any/all losses and damages suffered by others in connection with your business.
If you do not ask the question, or do not minute a satisfactory response, you could lose everything if your business is shown to be trading recklessly.
What is the question?
Simply: “Is this a going concern?”
In order to answer “Yes” you need to be satisfied that your assets exceed your liabilities (solvency) AND that you can confidently expect to meet your debts as they become due and payable over the next 12 months (liquidity), based on your business projections/forecasts.
Asking, and answering, this question at each board meeting you will show that you have examined the balance sheet and the projected cash flow of the business and are satisfied with both – a fundamental part of good governance and sound business.
Of course, if you find yourself having to respond negatively to either the solvency or the liquidity part of the question, the board will then need to determine, and minute, immediate remedial action to be taken, but that’s an issue for another post.