One of the questions The Insolvency Experts are asked often is ‘How can I reduce the risk of Liquidation?’. This is a difficult question to answer, as it depends massively on the company involved and their current financial state. There are a few options however, that almost all companies can do in order to improve profitability and move away from insolvency, therefore avoiding liquidation.
What does liquidation mean?
Liquidation refers to the process of closing a limited company, selling their assets to pay creditors and removing the company from the Official Register.
There are many reasons why a company may have to enter into liquidation. Some of these can be voluntary, though often there are cases where a creditor or the Courts will force a company into liquidation in order to ensure that debts are paid. You can read more about what the liquidation process is and what it means in our Liquidation Guide
How to avoid Company Liquidation
There are several challenges that business owners face when trying to be successful and avoid financial difficulty. To avoid company liquidation, you are actively attempting to keep your business profitable and avoid insolvency.
Reducing overheads and cutting unnecessary expenditure are simple tasks that can help keep your business afloat during difficult periods, though there are a few more important ways that you can attempt to actively avoid insolvency.
There are a few factors that need to be considered when dealing with solvency and potential liquidation:
Manage Cash Flow
Managing your cash flow is one of the most important factors when it comes to dealing with insolvency. Cash flow is important for businesses of all sizes and even when it appears as though things are going well, cash flow problems can easily lead to liquidation.
Business cash flow issues can be avoided by:
- Invoicing promptly;
- Negotiating regular, stable payments from long-term clients;
- Recovering debts owed to you;
- Not letting unpaid bills linger.
Knowing when money will arrive can help you to keep on top of your finances and ensure that all bills are paid. This way, you can manage cash flow effectively and have a better chance of remaining profitable.
Build a relationship with creditors
Building a strong relationship with creditors can reduce the risk of proceedings against you, should your business face financial problems. Keeping them informed at all times and building a good record of prompt payment can also help.
Your creditors are the ones who can request a winding up order and have the courts push you into liquidation, so it is important to ensure that you keep them informed of any issues and actively work to solve them.
Enter into another formal insolvency process
There are a few other insolvency processes that can be used that may help bring your business back into being solvent. These include:
Company Voluntary Arrangement (CVA)
A CVA is a proposal between a company and its creditors that enables the company to repay its debts over an agreed period of time. This allows time for the business to restructure if needed, sell unnecessary assets and bring themselves back into solvency. Learn more about this process in our complete guide to CVA’s.
Company Administration is a more complex and serious process that can still lead to company liquidation. There are options however, that can allow for a business to be sold or to restructure with the main aim of returning to profitability.
Many larger companies, such as high street retail, tend to use administration as a way of creating a debt repayment plan and increasing profitability, if they aren’t wanting to sell. Learn more about this process in our Simple Guide to Administration.
What are my options regarding liquidation?
You should always seek professional and expert financial advice if you think your business may be facing financial issues. The Insolvency Experts provide business debt advice to organisations of all sizes, helping them to take the best course of action. Our professionals can help your business to deal with cash flow issues and subsequently, the threat of Liquidation.
If you represent a business that is concerned about Liquidation or you’d like more information on Insolvency, please get in touch with The Insolvency Experts today. Contact us online and we’ll be happy to discuss any issues your business is facing or call our expert team directly on 01204 208 162.