Starting up a business is never an easy thing, and it requires much effort, skill and funding to propel it forward. A business without a proper execution plan may end up in a similar fate as most businesses do: bankruptcy and even winding up of the business. Identifying the early signs of insolvency may enable you to seek help from a professional earlier, which could help you to turn around your business.
What is insolvency?
Insolvency is the stage where a business is unable to meet its creditors’ requirements of repayment. This could be due to a few factors: that the business has a low cash-flow from its high operating expenses, poor management of cash, bad investment decisions, etc. If your liabilities exceed your assets, you could be at risk too. Being in a stage of insolvency does not mean bankruptcy. There is still hope, as being insolvent means that you are unable to pay off your debts, and there is still room for negotiation on the means of repayments.
Warning signs of a possible insolvency
An increase in the price of goods and services translates into higher expenses for the business. They can either pass it on to the consumers, or absorb these costs. By passing it on to the consumers, some of them may turn to cheaper alternatives. By absorbing these costs, the expenses are higher on the balance sheet. Other essential expenses like advertising, overheads or employees’ salary may add up and eat into a business’ profits if it is not managed properly. Often, a planned budget may be understated, leading to overspending in funds.
Seeking help from the professionals
These are some of the early signs that could lead to insolvency and they could be detected early. Companies like Chamberlain & Co are business recovery professionals who are able to offer you the guidance and advice to prevent insolvency from happening, or even mitigate the effects of it. Having been in the industry for a long time, business recovery professionals normally have a better understanding of regulations, credit assessment, and they may even be able to help you negotiate a better repayment term with creditors, liquidate any unessential assets, offer restructuring options, etc.
Apart from providing you the guidance and advice on insolvency issues, a business recovery professional should be able to offer you advice on other services such as: liquidation, company dissolution, company voluntary arrangement (CVA), business restructuring, administrative receivership, and even bankruptcy as a last resort. Knowing about these terms will ensure that you are aware of all options before planning your next move.
Business owners may not realise the importance of speaking to a business recovery professional, should they fall into financial hardship. In this manner, the company could have been saved through another way, instead of winding it up. Having an external party to go through your accounts and business practices will also ensure that you are getting a second opinion on the way things are run in the company, be it good or bad.