If you’re unable to pay your bills and are struggling from month to month, it may be time to look at your business and see whether you are in trouble. In this guide, we will take a look at why your business might be insolvent and what you can do.
How Do You Know When Your Business Is in Trouble?
The business world is very cutthroat. Even if your business seems rock solid, there may be certain factors that are warning signs that your business is actually in trouble.
Cash Flow
The first sign that things aren’t going to plan is the lack of cash in the business. All businesses experience dips. But if this is a continuous problem, the business is probably in trouble. You may be spending more than you’re earning and need to cut back.
High-Interest Payments
If lenders view you as high-risk, funding debt will cost more. If lenders always seek stronger personal guarantees or security against the money they lend to you, it could be a sign of poor financial health.
Unable to Pay Bills
It’s normal for bills to get missed, but if your business is frequently missing its bill payments, it could suggest your business is underfunded. Defaults on HMRC or other arrangements can be damaging to the business and your reputation.
Falling Margins
For long-term survival, you need profit. If your business is experiencing falling margins, it suggests your costs are too high and prices or income is too low which isn’t sustainable.
Unhappiness in The Business
If you’ve noticed your employees and managers are stressed and unhappy, it could be a sign your business is in trouble. This stress can result in random cutbacks and sudden switches in strategy which could end up doing more damage.
What to Do Next
In situations where your business is failing, it’s time to look at insolvency options to solve your financial problems and help you keep your wealth. Here are some of the options you could consider.
Close The Company
Liquidation is where your company is legally ended, and it will stop doing business and stop employing people. It will be removed from the register at Companies House, and it will no longer exist. This can be done via:
Member’s Voluntary Liquidation (MVL)
MVL is the positive ending to a company’s life where the company closes and there are no outstanding matters. It is a tax-efficient and lucrative end for your company’s shareholders. As MVL is a positive process, choosing an MVL company holds the following benefits:
- Shareholders will only pay as little as 10% capital gains tax
- Prices are low
- Turnaround and the distribution of cash to shareholders from day one
Company Voluntary Liquidation (CVL)
CVL is a process where the directors of the company bring its existence to an end. This is a great option if your company has more liabilities than assets or can’t pay off debts. This process is ideal for companies who are facing bankruptcy where companies can be offered a process that is the best out of a bad situation. Benefits of CVL for companies include:
- Directors benefit from greater control and get to tell their stories first
- It gives opportunities for directors to claim redundancy pay
- The pressure from creditors is removed
Company Administration
This is a way of stopping any legal action against your business whilst an insolvency practitioner tries to save it. The administrator will work towards saving the business to find the best solution. Business administration could be the saviour of your business. Some benefits include:
- Protection against compulsory liquidation
- Provides opportunities for your business to be saved
- Business continuity is protected
- Creditors can’t take further action against the company
How You Can Help Your Business
Before your business reaches the end, you may be able to take certain steps to get your business back on its feet.
Identify the Cause of the Decline
The most important step to take is identifying the cause of why your business is declining. Look back at times when profits were up, and sales were strong and look at when that changed. What was going on inside and outside of the business at that time? From there you can focus on how to address the issue.
Understand Your Target Audience
Marketing to the wrong audience is a mistake a lot of businesses make. You need to ask yourself what your customers want and who they are. You can also ask for customer feedback and review what is said to point you in the right direction for change.
Reduce Your Overheads
If your business is struggling, try and cut your overheads by eliminating unnecessary spending where possible. This could include:
- Not drawing petty cash unless it’s essential
- Ask for rent reductions
- Review expense claims and rejects any that are unnecessary
- Selling non-essential assets
- Cut overtime costs
