What is ‘Going Concern’ in Your Business?
No, that’s not a typo. The term is ‘going concern’, but what exactly does it mean? Simply put, going concern is an accounting term for a company that has the resources necessary to continue operations for the foreseeable future (usually at least 1 year). In other words, it means that a company is able to stay afloat and avoid bankruptcy.
Here at CFO Source, we’ve provided going concern accountant services in Maryland for years now, and have built up a wealth of knowledge. We wanted to share some of this with you today.
How Does Going Concern Affect Me?
Accountants use going concern accounting to choose what kind of reporting appears on financial statements. For instance, companies that are going concern may choose to report long-term assets in an annual report rather than a quarterly one. Companies remain in a state of going concern until the sale of their assets impairs their ability to continue operation.
Generally, accountants view going concern companies as ones that utilize their assets wisely and aren’t forced to liquidate anything. Going concern principles can also be used to decide how a company should move forward with any asset sales, expense reductions or shifts in products.
The Conditions of a Going Concern
If a company is ever in doubt that it can continue as a going concern, there are accounting standards that require it reveal the conditions that support that concern. Statements should also show the manager’s views and future plans.
Conditions that could lead to a doubt about your business’s going concern include: continuous losses across periods, negative trends in operating results, defaults on loans, and lawsuits against the company.
Possible Red Flags
While there is no definitive way to tell when a company is not a going concern, there are several red flags. The listing of long-term assets usually doesn’t show up on quarterly statements or on balance sheets. Their listings here could indicate that the company is planning to sell these assets. Also if a firm is unable to meet its obligations without massive restructuring then it could be in danger of ceasing going concern.
Work With an Experienced Maryland Accountant
If you’d like to learn more about going concern, and how it applies to your business, contact CFO Source today. We have worked with businesses from all across Maryland and from all different sectors. Our team of Maryland accountants is standing by today and would be more than happy to assist you in any way they can.