Protecting your business – how you can beat insolvency

Posted on 17 Jun 2016 by

Insolvency and a subsequent liquidation can be a stressful and trying time for directors and owners of businesses. One of the best ways to beat insolvency is to take action quickly before things get to the stage where they are too bad to change.

In this article we’ll give you few ideas to help you keep your business away from a company liquidation.

We often hear of firms getting into trouble when one of their customers in turn faces difficulty. Our first tip is to make sure that your customer base is sufficiently diversified so that you don’t find yourself relying on one or two customers for the majority of your income.

Try performing a Pareto analysis on your income and your profit. If you find that 80% of your turnover or profit coming from 20% of your client base then it’s a clear sign that you need to diversify.

The second tip is to consider insuring your customers. Debt insurance provides cover for invoices that are owed to you in case your customer goes bust or the debt turns bad. Of course there’s a cost, but it’s small in comparison to losing your livelihood.

The old saying “Turnover is vanity, profit is sanity” was never truer when ensuring that your business doesn’t face insolvency. Too often business owners chase income at all costs without thinking about the effect on their bottom line. Think about shedding unprofitable customers and product lines and concentrate instead on the things that do make you money.

Alongside profit, cash is the lifeblood of a business. Having the cash to pay your creditors when due is one of the key tests of whether a business is insolvent or not.

Probably the easiest method of raising cash, and the most often forgotten is having a great credit control policy.

Although they pay their suppliers on time, many businesses either forget or feel bad about expecting their customers to pay them promptly in turn. Bu the truth is that if the company continues to allow debtors to lag in their payments then sooner or later they will run out of money.

Having a clear credit control policy and an excellent credit control person will not only increase the company’s cash position it will also increase profitability. Research shows that debts that are collected quickly after the expiry of the term are less likely to end up going bad and being written off meaning that the bottom line will look better.

Having access to cash is clearly an important part of protecting your business against getting into financial trouble but one of the things you need to do when times are good is to arrange a suite of different lines of finance.

Rather like ensuring you have a portfolio of customers, making sure you have a different variety of sources of ready cash is important because if one of your funders pulls the plug you will still be able to operate by using one or more of the alternatives.

Don’t wait until you’re in trouble though. It’s a truism to say that it is always easier to gain access to loan finance when you don’t need it, so when things are going along just fine take some time to arrange a variety of different credit lines to insure yourself against a rainy day.

Speaking of a rainy day, hardly a year goes by without dramatic scenes of floods, hurricanes or droughts. It seems that weather systems are becoming more and more unpredictable so our next tip concerns insurance. It’s not just natural disasters that need to be insured against. Imagine what would happen to your business if you suffered a burglary, or if there was a fire. How would you cope?

Making sure that you have top quality insurance that covers you against all risks and business interruption will give you peace of mind. Just make sure you pay the premiums!

It may seem like a business owner needs to be telepathic to enable them to spot problems before they arrive but there is a method of systematising this.

Environmental scanning is a method of analysing changes to external factors that affect the business such as legal political and technological aspects. A good business owner will use a method such a PESTLE (Political, Economic, Sociological, Technological, Legal and Environmental) to identify these aspects and find methods of countering them should they arise.

Every business has at its heart a set of intellectual property that makes it what it is. It may be skills, copyrights, brands or knowledge that gives it competitive advantage but it is always surprising how few companies actually protect these.

A business that doesn’t have these protections in place is always at risk of a competitor starting up or indeed a staff member leaving and taking all the secrets with them.

Trademarks, copyright protection, non disclosure agreements and legal protections are all just as important as securing the physical space that things are stored in and the security of computer systems.

Our final piece of advice regards the point where the business owner recognises that things are not going well.

It is a normal human reaction to hope that it will all go away but burying your head in the sand is a bad move. Getting in touch with an experienced turnaround specialist will ensure that action is taken in enough time that the business won’t face insolvency or liquidation.

The message has to be that taking action quickly may seem to be admitting defeat but in fact will protect the owners, directors and staff and give the business the very best chance of surviving and thriving into the future.

Although often business owners may suggest that company failure was unexpected and unavoidable that’s rarely the case and in fact using our simple tips will help lessen the chances of a firm getting into trouble. Small changes in the way that organisations do business can protect them against any stormy weather they may encounter.

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