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How to deal with small business insolvency

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small business insolvency

Thousands of businesses face insolvency every year, together with the risk that they may have to close.

If you think your company has a problem, it’s essential to face up to it. Keeping a clear head and having the right mindset could make all the difference in the long term.

It’s likely that your finances will become a lot more complicated when you become aware that your company is heading towards insolvency. How you deal with this situation could determine whether your business will survive or not.

Here’s what to watch out for and the steps you can take to avoid business insolvency.

1. Directors are not being paid
It’s not a very good sign if there are insufficient funds in place to pay the people in charge – especially if your business has been up and running for more than a year.

2. Pressure from your creditors
One major red flag your company is heading for trouble is if your credit card companies, lenders, and other creditors have been pressuring you more than usual. If this is happening and you’ve failed to reply to messages requesting immediate payment, you’ll need to act fast to avoid further fines and any threats of repossession.

3. Ceiling borrowing
‘Ceiling borrowing’ is when a business takes the maximum amount of money possible from its debtors or the bank to keep itself afloat. If you find yourself in this position, you’ll need to take a good, hard look at your finances.

To avoid falling into insolvency, you’ll need to work out how to reduce costs to function on the bare minimum until your company is back on track.

What can you do about business insolvency?
If you are noticing the signs of looming business insolvency, now is the time to plan to avoid any negative consequences, which is likely to save you a lot of time, money, and stress in the long run.

The terms’ insolvency’ is often used without adequately understanding the situation or the inevitable knock-on effects, and the same can be said for ‘cash flow management.’

If directors make decisions without fully understanding their duties and the legal consequences of their actions (or inactions). In that case, the company’s finances are likely to come under stress, and the directors risk facing personal liability for any debts.

When directors ignore problems rather than address them, they usually have no choice but to liquidate their companies eventually. That’s why it’s essential to acknowledge and identify any issues as quickly as possible.

Although it’s natural to want to save your business at all costs, it’s preferable to avoid personal liability through wrongful trading when you continue to accumulate debts knowing full well you won’t be able to repay them.

It’s also important to let your employees know there may be something wrong and make everyone aware of the situation. 

Keeping up appearances in the short-term will not save your company’s reputation in the long run if such problems are not dealt with quickly and efficiently.

If you think your company is heading for insolvency, don’t hesitate to contact the Future Strategy team today.

We can talk you through all of your options and find you the right solution

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