Insolvency Advice for Small Businesses Directors

When you first become aware that your business is headed towards being insolvent, all of your business finances may start to a lot more complicated.

It is your reaction to this situation that will determine whether your company will be able to keep going, which is why it is important to face up to the problem once you realise that it exists.

Having the right mind-set and keeping a clear head will make all the difference. Below you can find insolvency advice for small businesses and the warning signs you need to watch out for.

Some initial warning signs of small business insolvency:

1. Constant pressure from creditors

If your lenders, credit card companies and other creditors have been pestering you more than usual, this is likely to be a red flag that you are heading towards trouble. If you have failed to reply to messages requesting immediate payment, you will need to act quickly to avoid fines and threats of repossession.

2. Directors remaining unpaid

Especially if the business had been up and running for over a year, insufficient funds to ensure that the people in charge are being paid is obviously not a good sign.

3. Ceiling borrowing

This is the name for a business simply being kept afloat by borrowing the maximum amount possible from its debtors or the bank.

If you are in this position, you need to take a good look at your finances and work out how you can reduce costs to function on the bare minimum until you are back on track to avoid falling into insolvency.

What you can do about small business insolvency

Having noticed the signs of looming business insolvency, you will be able to plan now to avoid the negative consequences, saving you a lot of time, money and sleepless nights in the future.

Acknowledging and identifying the problems will be key to continuing.

As freely as the term ‘insolvency’ is flung around, it is often used without proper understanding of the situation or the inevitable knock-on consequences.

If decisions are made by directors without fully understanding their duties and the legal consequences of their action (or inaction), the finances of the company will come under stress with the possibility of directors facing personal liability for their business’ debts.

Manage your cash flow

Cash flow management is another term that is thrown about a lot, and it’s more important, time consuming and (unfortunately) complicated than it appears.

(See 4 Key Steps to Brilliant Cash Flow Management)

Don’t ignore the problem

Ignoring the problem is the reason for many directors having no choice but to eventually liquidate their firms. Burying your head in the sand is not the right thing to do! If you only take one piece of advice throughout your whole career as a company director, take this one: at the first sign of trouble, seek professional help!

Avoid wrongful trading

Although you will want to save your company at all costs, avoiding personal liability through wrongful trading – continuing to accumulate debts when you know you aren’t able to pay them back – is obviously preferable.

Speak to stakeholders where appropriate

Furthermore, letting your team know that there is something wrong to make everyone aware of the situation should always be your first priority to ensure that each employee is on the same page.

After all, it is better for them to hear it from you than from someone else, as morale will be severely damaged if the local press knows more about your company than its employees.

Getting advice and sharing the problem with your team will help you to feel less isolated and help you to construct a clear plan of action so that you can see a light at the end of the tunnel.

Remember that it is the long term goal that you want to keep in mind: a short term keeping up of appearances will not save your company’s reputation in the long run if the problems are not dealt with.

Further Reading

How to get your business out of debt – 6 options to consider https://www.forbesburton.com/insights/get-business-debt-6-options-consider

How can I turn a company with poor cash flow around? https://www.forbesburton.com/insights/can-i-turn-company-poor-cash-flow-around

Next steps

It is often not the situation that you are in that reflects your success, but how you deal with difficulties when they arise.

If you think that your company is insolvent, or heading towards it, give us a call now on 0800 975 0380 for a non-obligation chat to find out what your options are.