How Can I Stop or Avoid Insolvency?

If you’re reading this you may recognise that insolvency is a real possibility for your struggling company.

What follows is by no means a certain route out of trouble, it simply outlines worthwhile areas of focus as you try to bring the business back to profitability.

How to Avoid Insolvency or Liquidation

Avoiding Insolvency

  1. Are You Invoicing Your Customers Efficiently? – Poor collection protocols are symptomatic of a chaotic infrastructure, and give clients the impression you’re not serious about cash flow management.
  2. Is Your Accountant Keeping You up to Date? – As a director, you can’t run the business without accurate knowledge of cash flow, including proper forecasts. Especially if you’re fearing insolvency, you need 24/7 knowledge of how much is due, including HMRC liabilities. If not, it’s time to get better accounting support.
  3. What about Finance? – Timely finance can give you space to breathe while you tackle core areas of the business. Obviously this isn’t the solution for serious debt, but it’s floating you through a downturn it could be the right move.
  4. Can You Reduce Inventory? – Less stock means more cash-flow which may mean the difference between making payroll or not. Run as close to the wind as you can, while ensuring you can cover orders. This is why great supplier relationships make all the difference: they may be willing to negotiate smaller minimum orders for a long-standing client.
  5. Do You Have Assets to Sell – Do you have equipment, or soft assets which you could sell to raise quick capital? Businesses edging towards insolvency are often required to make hard and painful decisions if they’re to survive. Put aside the plans you had and focus on what you can do right now to keep the company afloat.
  6. Do We Need to Let Make Some Employees Redundant? – Reducing staffing costs is another way to increase working capital. This needs to be done carefully so it doesn’t either affect morale, or intefere with the company’s ability to fulfill its core business function.
  7. What Other Overheads Can You Reduce? – Can you save money on premises costs, R & D, Marketing, or other aspects of your business?

When Insolvency is Looming

If you situation is slightly more pressing, with creditors applying pressure, and no sign of business improving, your actions become even more critical.

Negotiate with Creditors

Creditors are often not unreasonable. If they push you into insolvency they may not get paid at all so try to keep the lines of communication open, and do not ignore them or things will escalate fast.

Structured payment plans are normal business practice so put together an informal 12 month plan and arrange a meeting to discuss. Or consider a formal payment plan known as a CVA, for which you’ll need an insolvency practitioner’s help.

CVA’s need to be approved by 75% of creditors to get approved.

Seek Help from a Licensed Insolvency Practitioner

Insolvency Practitioner’s are not just there to close company’s down: they’re trained to look at a company’s financial situation and appraise whether it remains viable and, if so, how to rescue it.

If they deem it needs to close, they can also make recommendations as to the best means of doing that, so that the director’s retain the most control.

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