5 Tips for Avoiding Business Insolvency
If your business is facing financial difficulties, it can be difficult to fight the urge to bury your head in the sand and hope they will magically resolve themselves. While this almost certainly will not happen, insolvency is not inevitable and is, in many cases, completely avoidable.
No matter how bleak things might seem, taking a few vital steps and knowing when to seek financial advice, could mean the difference between recovery and demise.
Examine Your Cashflow
There are all sorts of reasons why even perfectly successful businesses run into cash flow issues. There are steps you can take to combat this and ease things up a bit. If you’re feeling the pinch in this respect, you might want to have a look at your payment terms and invoicing procedures.
Are you too lenient with debtors? Should you renegotiate payment terms to encourage your clients to pay on time? You can also make sure your invoices are accurate to reduce the likelihood of time-consuming queries. If some payments you’re owed are very long outstanding, you might need to consider taking action to recover them.
Look also at your assets and stock. Are you running a tight ship in this respect? Are any of them underutilised or unnecessary? Could you introduce a much-needed cash injection by parting ways with a few?
Consider Your Staffing Levels, Recruitment Policy, and Development Plans
The value that dedicated and committed staff bring should not be underestimated, but when a business is in trouble, examining staffing costs could make all the difference.
Here are some questions to consider:
● Can you cut staff overtime?
● Could you temporarily reduce research and development spending, or budgets for advertising?
● Can you review projected spending on future investments?
● Can you implement a recruitment freeze, or use freelancers and temporary staff rather than making a long-term commitment?
There are many ways to reduce your staffing bill without implementing redundancies.
Review Your Assets, Stock and Other Overheads
Like cutting the staffing bill, reducing other overheads can be a daunting endeavour, but facing the prospect of insolvency can be a strong motivator to make some difficult decisions.
This will be an exercise in deciding which aspects of your core business are essential and which are ‘nice-to-have’. Once you’ve identified the no-go areas, you can begin to assess which others could potentially be reduced, or removed entirely, even if temporarily.
You can look at your premises: If you’ve recently sold off some stock and other assets, will you need the same space? Could you move to a smaller, more economical location?
There might also be other benefits you hadn’t previously considered. For example, a move out of town might mean better parking and access for your staff. This might make potential recruitment and salary increase freezes much more palatable.
Contact Your Creditors
Be honest and don’t try to hide from this. A well-timed, honest and diplomatic conversation could give you some breathing space and help to avoid possible legal action. In addition to suppliers and other creditors, consider contacting HMRC as well to negotiate extensions and manageable payment plans.
Equally, if you owe money or are expecting an influx of bills and payment obligations, you could contact your suppliers to negotiate extensions or adjustments to payment plans or your credit limit.
Call in the Experts
You need a sharp eye and a realistic outlook to be able to decide when you need to call in the experts. Obviously, nobody knows your business like you do; you’re in the best position to see and accept when a slight downturn is likely to turn into a serious problem.
A series of seemingly small financial setbacks can combine to sound the death knell for even the most profitable of businesses. Don’t let this be you. Have the foresight to know that bringing in the experts at the right time could make all the difference.
Insolvency experts are impartial and don’t have the emotional ties that can cloud the vision enough to stop you making difficult, but necessary decisions. They can help you to draw up rescue plans, finding solutions that you might not have previously considered. Early action gives you options.