As a business owner, you probably have had some hard times here and there, when cash-flow was stretched and the financial stability of your business would have been compromised if your customers wouldn’t have honoured their payments on time. Maybe you have even had to resort to short term business loans to make the payroll during a low month, or keep your business afloat by ordering some more products to sell. Times are tough and most businesses have been there already. However, if you are unable to pay your debts as a business, your are now insolvent, and that is a whole other story.
You are considered insolvent if you owe a creditor more than £750, and they have served a demand at your registered office that you haven’t settled for over three weeks, or if you have an on-going court order.
Such dire straits can put a toll on your business, and should be handled with care. First, you should make sure that you remain transparent, towards your employees and your providers. Many providers will be understanding if you ask them to wait a little more for their payments, or to include a 60 days payment clause straight away. That could help you get a little more cash-flow while you get back on your feet.
Employees deserve frankness as well, and you should tell them what the company is going through so they have a choice to stay or look for more stable sources of employment. Maybe non key employees could be offered the option to reduce their hours, work four days a week for the time being, so you can save a bit on payroll.
Then you should go through the company assets and try to liquidate all the non essential ones. Sometimes, downsizing to a smaller office, selling your big warehouse and renting a storage facility only when you need can save you a big sum. You should look into leasing options for anything you don’t use regularly, and strictly examine your expenses. While cutting on air conditioning won’t make a big difference, getting rid of freelancers when you have employees who are able to perform the task, or finding new, cheaper providers will.
As a last resort, if your business still is in the red and you are unable to pay your providers and your debts, you will have to file for bankruptcy. This is a complex procedure, and you should always look for help, such as insolvency advice from Wilson Field, before you venture into it. Arrangements can include a CVA, which is short for a company voluntary arrangement, and is a contract between you and your creditors that is legally regulated, and offered a payment plan over longer terms to keep you afloat. Another step is liquidation, when all your assets are sold in an attempt to refund your creditors, and your shareholders.
There is an order of reimbursement to your creditors, starting with your secured debt, all the way down to unsecured debt.
This is a stressful time for your company, so the best you can do is take measures as early as possible, in order to avoid bankruptcy. With prevention, you can weather the leaner months and keep your business alive.