Just a few late invoices and poor customer feedback can push your business towards insolvency proceedings. To reduce a company’s risk for bankruptcy, you need to be smart enough to identify the warning signs and take tough decisions to help your business thrive.
What do you mean by insolvency?
It’s a situation wherein a company or organisation cannot pay off its debts or bills. In technical words, it’s a serious condition when the company’s liabilities exceed its assets.
Every businessman needs to be alert and look out for ways before your business gets swayed away by insolvency.
Are you thinking about the reasons responsible for increasing insolvency risks?
The common causes of insolvency include poor capital management, cash flow, business decisions, etc. Every business person should be competent enough to undergo such situations. You need to strictly follow the old saying ‘Hope for the best and prepare for the worst’.
Let’s understand the causes of insolvency.
Cash flow crisis
Limited funds can be dangerous for your business to survive. If you think your business can stay stable with your next month’s earnings. You’re wrong here! Every businessman should understand that you need to have ample cash reserves to cover expenses like payroll, taxes, rent, inventory, sales and other unforeseen costs.
You cannot afford to assume as sales tend to vary every month. Make sure you have enough cash in your account so that your business doesn’t experience any financial issues. Keep sufficient funds to cover all your liabilities. You can take valuation services for a comprehensive report on where your business stands.
Underestimating competitors
Never ignore your competitors as there are high chances of losing market share, especially when you have a rapidly growing competitor who can affect your revenue and profit margin. Before entering the market, study your competitors and see how you can add value to your business.
Focus on customer retention and research their propositions and benefits and work on how you can keep your steady flow of revenue even if competition increases.
Poor employee retention
Depending on one or two key employees can severely hurt your business. A hallmark of a great company solely depends on every employee’s skills and abilities.
Never rely on a few employees as it can be risky if they plan to leave at once. Make sure all your employees undergo training and gather ample knowledge from seniors so that they are future-ready.
Lack of stable sales
Excessive debts or a tremendous amount of loan can cripple your business. You need to manage your business by paying back debts on time. Refrain from borrowing money and stay financially fit to face temporary downturns in sales and revenues.
Are you looking for a genuine solution? It’s simple – Recover your debts.
- Be careful with your unpaid bills
- Plan stock reduction
- Cut the amount tied up in stock
- Renegotiate credit limits
- Adjust payment dates with suppliers
Key takeaways:
- Double-check credit references of prospective trade debtors
- Keep a close eye on your credit limits
- Adhere to effective credit control procedure
- Incorporate retention of title clauses in your customer contract
- Prepare an invoice financing agreement
It’s time to pull your socks up and start working from the beginning to prevent your business from falling prey to insolvency. Need help?
Rakesh Narula & Co. is a leading valuation advisor with expertise in the valuation for insolvency proceedings, bank lending, dispute resolution, financial reporting, statutory compliances etc. Contact us!
Rakesh Narula & Co. 