Dire Directions: Keep Your Business from Facing Insolvency

Dire Directions Keep Your Business from Facing Insolvency (2)

British businesses have been entering insolvency in record numbers.

One surprising reason they seem unable to catch their own decline is that they are simply unable to recognize the warning signs when they come.

You base your insights on poor budgets and cash flow plans

 No business can operate without well-thought-out budgets and cash flow forecasts.

Many companies, though, put their plans together with nothing more than gut instinct. Turning instead to business data and other logical methods is likely to be more informative, and offer the warning signs necessary.

Your company frequently misses its tax payments

 Many businesses try to improve cash flow by holding back statutory taxes that aren’t absolutely necessary to continue in business.

This is a dangerous step, though — when a business fails to pay its statutory taxes and then goes on to become insolvent, the authorities tend to look upon it as a clear sign that the company traded while insolvent, and hold the directors responsible.

Your company misses its employee contributions

Delaying superannuation contributions to employee accounts is another trick that many struggling companies use to help with cash flow problems.

They take advantage of the fact that employees almost never notice. Missed superannuation contributions are considered a clear sign of impending insolvency, though, and can come back to haunt directors.

Your business is guilty of shoddy record-keeping

Accurate record-keeping and well-organized accounts are an excellent indication of a company’s health.

The less well-kept a company’s records, the more likely the authorities are to find negligence when insolvency investigations are conducted.

What do you do if you see the signs?

No two companies may be the same; nevertheless, when they are faced with insolvency, these ideas usually work.

Investigate the problem: Take a thorough look at your business from every angle — financial management sales, customer service and bookkeeping — to find out where you can tighten things up.

Pay close attention to cash flow: Many companies fail simply because their management does not understand how tricky cash flow can be.

Since they fail to attach much importance to it, they tend to ignore warnings by their accountants, too.

Being successful bringing in sales is one thing, and making sure that you have enough cash flow from one day to the next is another.

Plenty of businesses with healthy order books go under simply because they do not have decent cash flow.

Talk to your employees: Every manager and other important members of your staff deserve to know where your company stands and to offer suggestions.

If you are honest about seeking their ideas, you’ll probably find a solution.

Communicate with your bank, your suppliers and customers: If you do find yourself in insolvency, your investigation will go much better if you’re found to have not hidden vital information from your business associates.

It’s important to be straight with those who are invested in the health of your company.

Find an insolvency practitioner 

An insolvency practitioner is a professional accountant or other financial professional who is licensed to steer businesses out of insolvency and help it with  other trouble, such as the company winding up.

Such professionals bring much-needed objective outside perspective to businesses, handle creditors, and help manage debts and assets.

Since insolvency practitioners are able to bring a great deal of restructuring knowledge and other useful skills to a business, it’s important to not put off calling in these professionals when you notice the warning signs.

It can save your company’s life.

Adam Johnson spent three decades as a small business advisor. He likes to spend time writing about his industry experience and insights.

His articles can be found on many business and finance related blogs.

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