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How to Prevent Insolvency
As Licensed Insolvency Practitioners, we’re well accustomed to seeing and dealing with businesses and individuals in all stages of financial distress. But usually prevention is better than cure, so knowing how to prevent insolvency from happening in the first place is preferable.
There are few guarantees in the world and what works for one may not work for others, but on the whole, success leaves clues and following some good financial habits are sure to give you and your business a far better chance of preventing insolvency than leaving matters to chance.
What steps can you take to prevent insolvency?
Experience teaches us that there are a few solid, good habits that you’d do well to adopt for your business in your bid to prevent insolvency. Don’t wait until your finances start to look precarious, begin with good practice from the outset and you’ll give your business the best chance of never having to deal with an insolvency.
Start with a business plan – If you don’t know where you’re going, how will you decide which route to take, how will you know when you’ve got there and how would you spot if you start heading in the wrong direction? A business plan is a map to success and every business should have one. Knowing what you want to achieve and setting out in advance how you’ll do it, as well as acknowledge what you do well, what you do badly, what you could take advantage of and what might get in your way, all take you mind through a process of planning, which if done right can give you the kind of insight and focus to give you far better chance of success than hand work and hope by themselves.
Keep your cashflow projections up to date and under constant review – There’s nothing that’ll kill off a business faster than having no cash when it’s needed. You’ll already be familiar with how your finances ebb and flow. When suppliers need paying, when your overheads are due etc. It’s unusual for a businesses finances to be completely random, so using your knowledge of what needs paying and when money is coming in, you can build up a fairly detailed prediction of what your cash situation is likely to be down the line. if you spot a point where there’ll be more to pay than you’re likely to have cash to cover, you’ll be able to take steps now to fix it before it happens.
Get your credit management under control – Doing a highly profitable job doesn’t help pay the bills until the money is in the bank for you to spend. As great as it would be for all your customers to pay their bills in full and on time, it’s a rare business that doesn’t need to give its clients a nudge from time to time. Chasing overdue invoices can sometimes be a little stressful, but certainly less stressful than becoming insolvent due to clients taking too many liberties with their due dates. If you find that chasing payments is eating into your time too much, you might consider outsourcing your credit management, or even entering into an invoice financing arrangement to streamline your credit control processes.
What if you can’t prevent insolvency?
You can only control what you can control and try to make contingency plans for that which you can’t. Sometimes the best business plans, the most accurate cashflow projections and the most watertight credit management practices can’t provide enough leeway to deal with a particular circumstance and despite your best laid plans, you might be unfortunate enough to encounter matters beyond your control which impact your business to the point where you’re unable to compensate.
When this happens, a Licensed Insolvency Practitioner could very well be the equivalent of an Ace up your sleeve. Business recovery is all part of the job to an IP and if your business has experienced an issue which forces it into insolvency, we could well be able to provide the experience and specialist help which allows you to bounce back.
If you’re looking for help putting best practice into place in order to best insulate your business against an uncertain future, or need help to bring your business back from the brink (or beyond the brink) of insolvency, contact us for a free consultation and we’ll help you move forward, in the right direction and with confidence.
Speak to us, we can help.