It is a tough global market out there and businesses can often find themselves struggling to make ends meet. With the advent of the Internet and the globalized economy, everyone is expendable and replaceable. If a business is not offering adequate product or service, there are ten others that are more than willing to take its place. There is an increased possibility of becoming insolvent as a company.
It is a difficult reality to face but it is not all bad as many less informed people would make us think. An insolvent company is not necessarily a failing one. A business that is currently not able to pay its dues can still be a perfectly viable one that has simply fallen on hard times.
A business is technically insolvent if some seemingly trivial situations occur, such as late payments or poor cash flow management. There are paths we can take and things we can do to get ourselves rid of this moniker. Here are some of the most important things to consider when trying to tackle company insolvency.
1. Defining insolvency
A company is insolvent if it answers positively to one of the two questions. The first one is: can it pay bills when they become due? The second is: does the company have more liabilities than assets on its balance sheet. If either one of these questions has a positive answer, it entails a whole host of strategies that company leaders need to employ in order to remedy this problem.
The ramifications of having an insolvent company can even be personal in some cases. It is not something that can be remedied through a simple trade. Still, there are things we can do to keep our business afloat even if it is technically insolvent.
2. Financial injections
Most company leaders will try, if able, to inject personal assets into the company in these times of strife. If done right, it can be an adequate, short-term solution. If we do not have personal savings, it can be done via a personal loan or a credit card. It is a strategy that comes with its own set of risks and is often misused and misunderstood. It can, however, be an only option in some cases. There are plenty of sources that personal injections can come from such as friends or family. If all else fails, we can always exchange company shares for a shot-term influx of money.
3. Informal agreements
If insolvency ever presents itself as a company problem, it needs to be acted upon immediately. The worst thing one can do is to ignore the problem and wait for the storm to pass as it will not simply blow over. We need to contact our creditors and aim to reach an informal repayment plan. In such a case, we will always be on the back foot and ultimately at the creditor’s mercy.
That is why it takes negotiation skills and know-how in order to reach a mutually beneficial agreement. It is in everyone’s interest for us to pay back what we owe. Therefore, it is much more likely for the creditors to give us more time to pay our debt than to take legal action that is always time and finance-consuming. Just so we cover everything, let’s say that an informal agreement is not possible.
In that case, when it comes to insolvency, it is highly advisable to seek an agency that offers professional help such as the Dean-Willcocks Advisory. Such agencies will make sure to handle our case in a professional manner that will be as painless as possible for all parties involved.
4. Business restructure
A business that may be viable in the long-term, may not be in the short-term. That is why businesses change and morph, sometimes beyond recognition internally over time. The current structure could be what is holding us back and has led to the insolvency situation. Restructuring a business involves rethinking basically every aspect of the company.
From staffing levels and outsourcing opportunities to downsizing, moving to different venues and renegotiating already-established contracts. No matter what it is, the structure of our business needs to serve us the best it can. It must not be a burden to the continuous daily operations and general health of the company. It needs to follow and adapt to the needs of the business and the market surrounding it. There is a lot of difference in the internal structure of a small start-up and a well-established industry giant.
Running a business without loans, debts and incurring debt can be very difficult, maybe impossible and often unnecessary. These exist for a reason and that is for us and many others to have a chance to advance our business beyond our current means. If we fail to pay our bills on time, it is not the end of the world as there are courses of action that we can take in order to remedy the situation. By arming ourselves with knowledge and professional advice and supervision, we can overcome any hurdle.