Rescuing Your Business from Insolvency

15th Apr 2020
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The concept of insolvency (not being able to pay what you owe), is one of the biggest nightmares of any business. The consequences of such a thing usually mean that the business will go into liquidation or go into administration and be sold to a new owner. Overall, it’s the end of your adventure in the business world as you know it. Sure, avoiding this needs to be one of your top priorities but even if this seems to be an inevitability (from your current standpoint), there’s so much you can do in order to rescue your business from insolvency. Here are several tips to help you out.

Types of insolvency

In order to start devising a plan, you need to figure out what kind of insolvency you’re facing. Speaking of which, there are two forms of insolvency – the cash-flow insolvency and the balance-sheet insolvency. The first form happens in a scenario where you have enough assets to cover your debts but do not have the appropriate form of payment. For instance, you owe an asset whose value would cover the debt but lack the cash to do so. Other than this, there’s balance-sheet insolvency, which means that your total debt balance surpasses the value of your assets. This is what most people have in mind when they talk about insolvency.

Aside from this, there are also terms of technical insolvency and actual insolvency. What a lot of people are confused about is the synonymy of terms. You see, technical insolvency and balance-sheet insolvencies are one and the same thing, which makes people assume that the same goes for cash-flow insolvency and actual insolvency (which is not the case). The actual insolvency simply means that you can’t pay your debts when they fall due. In other words, it can be cash-flow insolvency but it’s not necessarily the case. 

Due to the fact that it’s such a complex matter, it might be for the best if you were to hire a local agency that specializes in insolvency solutions. For instance, if your NSW business is facing an insolvency crisis, what you should do is look for a reputable agency specializing in insolvency solutions in Sydney. This way, you get someone who can adjust the strategy to local laws and regulations instead of providing you with mere guidelines.

Improve your cash flow

One of the most effective ways to fight insolvency is to try and improve your cash-flow. There are several ways to do so. First of all, you may want to focus more on your regular customers. Just 20 percent of your regular customers are responsible for about 80 percent of your profit, which is definitely a figure that you need to focus on. Second, it costs you about five times less to make a person return than to make a new conversion. This gives you a far superior ROI. Lastly, one of the most important things is that you try your best to incentivize immediate payments.

A capital injection

Another thing you need to take into consideration is the idea that you need to come up with a way of providing their business with a capital injection. Sure, getting a loan means that you will have one more account payable to deal with every month, which is a bad thing for a business with solvency problems. However, if you need some additional resources in order to give your enterprise a push in the right direction, getting a capital injection might be a great idea. As you can see, it’s quite situational.

Handling your debtors

Chances are that your business has some debtors of its own, which you’re tolerating for the time being, in the hope of not losing a client for good. The problem, however, lies in the fact that while you’re being tolerant, you have your own financial obligations that you just can’t meet. Now, if you lack the leverage to make these debtors pay, it might be a good idea to start thinking about outsourcing this task to a specialized debt collector agency.

Cut costs

Another thing you should definitely do is try to cut costs in order to reduce your overhead. One of the ways to do so is to use the above-mentioned capital injection to pay off some of your creditors. This way, you can reduce the amount of interest that you pay on a monthly basis. Just make sure that these cuts don’t undermine your productivity or the quality of your work. These cuts only seem like a good idea, while in the long run, they might seriously damage your business, ruin your reputation and alienate your clients.

Consider offering a discount

Previously, we’ve talked a lot about incentivizing immediate payments, however, when things go south, what you may want to consider is a major sale or a discount. Sure, some see this as nothing more than devaluing your brand or outright losing money on your sales. However, what you need is some immediate cash income to resolve your financial problems. In other words, it’s a way of buying time and finding a temporary solution to an impending doom that your company is facing. Sure, it’s not an ideal solution but it is definitely a solution that you can turn to.

In conclusion

At the end of the day, you need to understand that none of the above-listed methods are simple or pleasant. They require extra effort, more austerity or an even bigger investment. However, unpleasant as they may seem, they’re still far better than going insolvent. Therefore, it seems like those who want to keep running and growing their business don’t really have that much of a choice. All in all, rescuing your business from insolvency is definitely not a simple matter but it’s an issue that’s worth your full and undivided attention.

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