Timing is Key

Timing is key

Authored by Kelly Burton

Kelly Burton

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Approximate read time: 3 minutes

Although timing is key with an insolvent business, sometimes it is difficult for business owners to realise that things may be going wrong. We’ve all heard stories about bosses living in ivory towers, oblivious to the real issues facing their businesses. If you’re a business owner and you don’t seem short of cash, you may be unaware what’s actually happening inside your company often until it’s too late.

Finding the source of the problem

Usually, unprofitable trading, poor debtor collection or other deficiencies in the business soon impact on your cash flow. It could take time for news of these issues to make their way through to you, so you may be lulled into a false sense of security.

How to spot the signs of insolvency in your company

As a company director, you’ll probably have a lot on your hands, and if you don’t have management systems in place, you could be caught unawares. Once you do become aware of an issue, you should try to uncover the source of a business’ weakness, whether that’s poor execution, poor products or the business structure.

Sadly, when a company is in trouble, many directors fail to drill down early enough into the details; like products and services offered, profit and loss, expenses and business structure, as well as cash flow, and some even try to continue trading as normal. Doing so can lead to further issues. As soon as you start to experience difficulties, seek advice.

Taking timely action

A timely and realistic assessment of your business can make all the difference. It can help you decide whether to throw your energy into operational changes to stop haemorrhaging cash and assets, keep jobs and save your company. Getting the timing right is key, and taking decisive action can bring the business back into profit. Or if no other options are available, secure potential buyers for the business.

Some of the options available for Company Recovery

Even companies with healthy order books can find that long-term cash flow problems catch up with them. Directors can take steps, such as negotiating terms with creditors and arranging refinancing packages, as they try to continue trading out of the difficult situation. However, these are only short-term fixes if they do not address the underlying problem.

Seeking help

Once you become aware of any indicators of insolvency, you should contact a licensed insolvency practitioner. Unfortunately, directors may put a lot of faith in their company or staff, with the intent of trading out of the trouble. Consequently, they’ll only seek assistance when all other options are exhausted, and the cash runs out, which may be detrimental to their creditors and suppliers.

Sadly, at such a late stage, there are few viable options available. The worst-case scenario would be when the creditor pressure proves too much, and the company may not be able to continue trading. In which case, the closure of your company and redundancies would be a more likely outcome than the company surviving.

In summary

As a director, you should be aware of your business’ financial situation, and if you see any signs of insolvency, timing is key, and you should seek out professional assistance from a licensed insolvency practitioner immediately. Failing to act quickly will result in the situation getting worse, and you could end up in a situation where it’s much harder, if not impossible, for the company to survive. The faster you act, the better the chances of saving your business.

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