What To Do Before Considering Insolvency

Even if your business seems to be doing well, it is important to understand exactly what insolvency is. You are insolvent if you cannot pay your outgoings when they are due (cashflow insolvency) or if your total assets are worth less than your total liabilities (balance sheet insolvency). Your business can be very profitable and still be technically insolvent, due to cashflow problems.

If you are in a potentially insolvent position, it is absolutely vital not to delay or to bury your head in the sand. You should seek professional advice immediately, not just to diagnose your exact position, but to find out what you can and cannot do. For example, many businesspeople will attempt to remove assets from the business if it seems as though trouble is ahead, or will try to keep trading in an effort to dig themselves out of a financial hole. Both of these avenues can lead to personal liability and even criminal charges. If your business is irretrievably insolvent, you must recognise this fact and enter into the legal insolvency process.

Fortunately, many cases of potential insolvency can be rescued, and there are a number of steps to consider before entering into formal bankruptcy procedures. The first option is to look into all possibilities for bringing in more money to the business. These are not limited to traditional bank lending, which may prove difficult to secure if your business is on the verge of non-viability. If your overall strategic plan is still sound, and your problems are a result of an unforeseen cashflow issue, you may be able to secure direct investment. This can come either from friends and family, or from an interested ‘business angel’. Such an investment can immediately turn around your fortunes, although it is only likely if you can prove that your long term strategic plan has the potential for success. As well as direct investment, you should also look into non-traditional forms of lending, such as asset finance and invoice finance. The former method can help to release cash from any infrastructure you may own, while the latter can smooth out any cashflow issues by providing a lump sum payment in return for the rights over a batch of your outstanding invoices.

The other side of the coin for those facing insolvency is to reduce the outgoings of the business. There may well be room to negotiate the payment terms of invoices you have received, or bills you must pay. It is certain that if you don’t ask for renegotiated terms, you won’t get them! This method can be particularly useful if you are facing a one-off cashflow crisis, as opposed to a situation in which you are making a continuing loss.

In short, insolvency should be viewed as a last resort. If you think it is a possibility, you should obtain immediate professional advice, investigate all of your options for greater short-term funding, and look to renegotiate your bills. Only then should you consider insolvency for your business.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.

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