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Painting Contractors: During Economic Downturn, Monitor Your Solvency

Name: Painting Contractors: During Economic Downturn, Monitor Your Solvency
Uploaded: 2023-04-19T13:13:18+00:00
Duration: 41 s
Channel: Daniel Honan
Description: In this advisory, the speaker urges painting contractors (and similar small businesses) to closely monitor their solvency during an economic downturn…

19 Apr 2023 · 1 min

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In this advisory, the speaker urges painting contractors (and similar small businesses) to closely monitor their solvency during an economic downturn. Solvency is defined as the long‑term ability to meet debt obligations and is measured by the total‑debt‑to‑total‑assets ratio. The speaker recommends keeping this ratio below 1:2 (i.e., debt less than half of assets) to maintain lender confidence. Weak solvency can erode short‑term liquidity, making it harder for lenders to provide additional financing when cash flow is tight. By maintaining a healthy debt‑to‑asset ratio, businesses improve their chances of securing needed credit during slow periods.

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To survive an economic downturn, penny businesses should monitor their solvency. Now, solvency is the ability to pay debt over the long term and is measured by a ratio of total debt to total assets. A ratio below 1:2 is ideal. So weak solvency puts a business at risk during a slow period because liquidity— which liquidity is the short-term ability to pay obligations— liquidity weakens and lenders may not provide further support. So it's important to keep an eye on solvency. Make sure your total debt to total assets ratio is below 1:2 so that you can ensure that you're gonna get the lending when you need it the most.