Insolvency is not something any business owner wants to face. Yet, it’s incorrect to believe an insolvent company is one that is failing. A simple error in cash flow management, where a certain bill cannot be paid on time, can lead to a technically insolvent business.
What’s important, however, is that you avoid burying your head in the sand if insolvency does strike. To ensure your business successfully navigates this unwanted situation, here are four steps to take towards survival from insolvency.
1. Get the right assistance
It’s wrong to assume you have to deal with insolvency on your own. In fact, it is recommended to receive assistance from a specialist practitioner, one that can provide expert advice in turning around your current position. This is particularly the case if your business has been plunged into significant debt and there’s no obvious route to take for survival.
As insolvency practitioner McAlister and Co notes, the faster you seek advice, the more options will be available for your situation. This is important if your aim is to rescue and recover your insolvent company.
2. Contact your creditors
Once you know you’re unable to pay those bills and appease your creditors, acting fast is essential. There’s nothing worse than simply sitting back and allowing the pressure to build up.
While you’d prefer to cover your expenses, obviously, this might not be a viable option for a multitude of reasons. In that case, get in touch with your creditors. It may seem a longshot, but creditors can often be reasonable and agree to an informal repayment scheme. After all, they’d rather receive debt repayment at a slightly later date than take legal action against you.
If HMRC is the creditor you cannot repay, connect them straight away and be honest about your situation. You could sort out a Time to Pay Arrangement. This can help delay when you need to pay your HMRC bills.
3. Inject cash into the business
This is easier said than done, admittedly. You’ve ended up in an insolvency position because of a lack of cash flow. Nevertheless, there are various options available where you can gain a quick injection of cash to pay off your bills. These include:
- Personal loan
- Credit card
- Investment in exchange for shares
- Invoice financing
- Sell company assets
If you decide to go forward with one of the above financing choices, ensure it’s something you can manage in the future. The last thing you want to do is fall further in debt with additional creditors to repay.
4. Consider a company restructure
Even if you have solved your current insolvency problem, the structure of your business might lead to similar issues in the future. At the very least, you should analyse if a restructure will help your company to lower expenses and boost profits.
As an example, you’re unlikely to want to reduce current staff numbers, but doing so and outsourcing certain tasks can lower your monthly expenses significantly. Moving to new premises and renegotiating with current suppliers can also help.