Businesses have come under increased pressure during the past couple of years as the economy continues to show signs of deterioration. But as interest rates increase and savings rates continue to be less and less rewarding, many companies are struggling to compete with the bigger, more stable competition. As debt mounts up, people inclined to bury their heads in the sand and hope that the problem will go away. However, hitting it head on will prove far more effective than ignoring it.
Many people assume that creditors will file for bankruptcy against an individual or company if debts are not repaid. However, the likelihood of that happening is extremely slim indeed. Bankruptcy is used as a means to solve individual insolvency problems and whilst it costs around £750 to declare yourself bankrupt, the price it would be for creditors can be 3 times this amount. Ultimately, they are opposed to doing so as the likelihood of them receiving the full amount of the debt back is thin, especially if there are other creditors involved.
To prevent companies from receiving a winding up order, the following steps should be followed and practices implemented into the business:
1. Seek help – Debt Management Plans
As debt mounts up, people inclined to bury their heads in the sand and hope that the problem will go away. However, hitting it head on will prove far more effective than ignoring it. For this reason businesses should attempt to gain advice from financial professionals as soon as they detect a problem in their accounting department. Without the help of insolvency experts, the most appropriate debt management plan may not be identified. Plus, professionals are well trained and equipped to better deal with negotiations between the business and the creditors. It is worth noting that creditors are usually keen to make deals and come to arrangements regarding re-payments. As the debt increases, the likelihood of the company paying it back declines, so creditors do not want to see a failing business.
2. Scrutinize Accounting Records
Knowing the exact financial status of a company is paramount in managing in-goings and out-goings. Without accurate, up to date records of all transactions, receipts and upcoming withdrawals, a director will not be in control of the business’s finances. Better management equals better knowledge. By ensuring that all records and documents are promptly updated and monitored then credit control will become enhanced. It will also allow for quicker decision making, especially when it comes to calculating an affordable monthly payment to creditors.
3. Consider new Suppliers
Many companies use suppliers with whom they have built up a rapport with and trust. Loyalty goes a long way in business and this includes merchants and dealers. However, if money is tight and a business is suffering as a consequence, it may be worth negotiating a new, improved deal with existing suppliers. Failing this, new suppliers will be only too happy to beat the price of their competitors and are not hard to come by.
4. Consider Relocating
It is important, at times of financial downturn, that a company’s staff are left not affected and left undisturbed by the situation. Having disheartened and unenthusiastic staff is in no way beneficial to a business, however, with change comes discomfort. CEOs and directors must use every power and tool they have to ensure that staff are happy yet aware of the current struggles the company is facing. Having them on board is better than not, but disruption should be kept to a minimum. If a lease is set to expire at a current location (offices, site, warehouse) then, again, negotiations should be made with landlords to attempt to lower the existing contract. Relocation may be the more realistic solution. Encouraging employees to be positive about the move is essential for team morale. Make sure that all staff know that this is a step forward and fuss will be kept to a minimum.
5. Stop Agency Use
When using recruitment agencies to hire employees for a company, the amount of commission that is spent can sometimes exceed the amount that it would cost to cover advertising, time spent in the selecting process and interviews. Whilst the whole process is somewhat of a headache and can take up much valuable time and money, recruitment is something that can quite easily be done in house. During time of financial uncertainty, employment can be scarce, making it the perfect time to cut ties with existing agencies.
Redundancies, staff cuts and unpaid leave, however horrible, may be necessary in particular circumstances. Financial professionals will be able to give straight forward advice on the measures that need to be taken to avoid forced closure from a winding up petition. If a debt management plan is refused by creditors then there are further options available, including pre-pack administration and voluntary bankruptcies. Before deciding that a business has failed, be sure to check with professionals.