Quote 'FT50' to a member of our team to receive 50% off your first three months when you select our Starter plan or higher
Claim Now!

What does it mean if my business is in the red?

This blog post provides handy insights about what it means when your business is in the red.

If your business is in the red, raise the alarm bells and act fast to maximise your chances of recovery.

A business in severe financial distress is often referred to as in the red, this means it’s in the precarious territory of running more expenses than it can afford. A business in the red raises red flags as when put under undue financial pressure, the business could collapse under the weight.

In the red, black, and green

While a business in the red is a cause for concern and likely insolvent, a business in the black is solvent, viable and able to fulfil its liabilities because it just about breaks even. A business in the green is in a prosperous position and flourishes as it makes a notable profit.

There’s a fine line between a business that’s solvent and insolvent, so business owners must tread carefully. Keith Tully of Real Business Rescue, a company insolvency and restructuring specialist, explains why it’s the duty of the company director to ask for help, fast, if they find the business in the red, with no sight of recovery on the horizon.

What happens if your business is in the red?

If your business is in the red, you’ll need to do everything in your power to get your business back on track. The first step is to recognise that your business is in the red. If you’re using industry-standard cloud accounting software, you should be able to access intuitive cash flow forecasting which will tell you if you’re set to run out of money, if you haven’t already.

Here are some common signs that often mean that your business is in the red:

  • Liabilities vs assets – Company liabilities may outweigh assets, so money owed by the business to creditors, such as suppliers or HMRC, is more than the value of assets owned by the business.  
  • Poor cash flow – If you can’t pay bills as and when they are due, this is a sign of a business in the red, at which point, a licensed insolvency practitioner may be required.  
  • Creditor pressure – The business may be under serious pressure from creditors to settle overdue invoices. This may come in the form of persistent payment reminders, final payment notices, or even enforcement action.  
  • County Court Judgment – If this is the final straw with a creditor, they may take court action against you and get a County Court Judgment. This is when the court decides that you formally owe money. If you fail to pay the money, the creditor may send bailiffs to collect the money or seek further court action and force you to pay.  
  • Winding up petition – If a creditor suspects that you’re insolvent, they may petition to wind up your company; in other words, push it into compulsory liquidation.

It’s the duty of the company to protect creditor interests so if the business is in the red, assess if this is a temporary or permanent state. If it’s temporary, you may require a cash injection to revive the business. This may be the case if you’ve lost a key client and you’re reeling from the financial loss, or you’re recovering from turbulent economic conditions, such as Covid-19.

If the red light status is permanent, this may signal that you need to invest in professional help from an insolvency practitioner to restructure the business and iron out inefficiencies, or because formal repayment negotiations are in order to lighten the burden on the business.

Watch the Webinar Recording

Start Your Free Trial

Let informed predictions and powerful reporting guide your business. Be ahead of the curve with Futrli.

Get business advice here

Our blog holds tips, how to’s and general business advice.

Futrli News

Futrli's February 2024 Release

This is some text inside of a div block.


Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat.

Futrli News

Futrli's February 2024 Release


3 Apps to beat accounting blues and scale your firm

Chris Downing catches up with three accounting app innovators to discuss the apps that they have developed that directly help accountants.


Where most prediction software falls short

Tread carefully when looking for prediction software. Find out how to dig deeper into your predictions with the tools that count.

Small Businesses

Cash is King! 4 ways to keep your cash flow healthy.

Cash flow is essential to your business’ survival. Read our top 4 tips for taking control of your cash flow.

Small Businesses

10 Common Cash Flow Forecast Hurdles

If there’s one thing that all small and medium-sized enterprises should prioritise, it’s their cash flow. Read on to find out the top 10 most common issues.


Empowering Accountants: How to Embrace Uncertainty with Futrli

The future is far from certain. Find out how Futrli helps accountants wade their way through murky, grey, “This might happen”-type scenarios.

Small Businesses

Inflation affecting your hospitality business? Take back control with these three steps.

Acting quickly is key to ensure you can ride out the incoming storm. Find out more in this article.

Small Businesses

Why cash flow forecasting helps businesses survive downturns in trade

Learn how cash flow forecasting is crucial for surviving slower trading periods.


The 7 reasons why SMEs struggle with cash flow management

Find out the 7 major reasons why your clients’ businesses struggle to achieve a positive, healthy, consistent cash flow.


Take clients from compliance to scenario planning in five steps

Scenario planning helps your clients imagine different environments or realities in the future, guiding the plans and decisions your clients make.


Flash reports and why to build them

This short guide covers what Flash Reports are and how you could use them as a speedy solution for your clients’ reporting needs.

Small Businesses

Head of Accounting and Futrli COO discuss challenges and solutions for small businesses.

Read Dan and Helen’s thoughts on how SMEs can protect themselves during what is set to be a challenging year.