Best Startup
It is likely that a large number of businesses are struggling with considerable debt, as a result of the Covid 19 pandemic as well as the current cost of living crisis. This could include having serious cash-flow issues, as well as being unable to fulfill business rates or taxes.
There are, however, a number of steps that businesses can follow if they are close to becoming bankrupt, as known as insolvency. The following 5 steps can be followed to help to recover a business, save it from failing, or help it to continue to trade.
It is important for a business owner to first look carefully at their situation, as well as have a thorough understanding of what has led the business to coming so close to being bankrupt.
1. Concentrate Efforts Towards a Business’ Business Customers
It is common business knowledge that no two customers are the same. One might be incredibly demanding, while another may be quiet and complete their payments in full and on time.
If your business is struggling financially and reaching close to bankruptcy, then it is certainly important to focus on the most reliable, as well as profitable customers as this can help to improve the business’ cash flow.
While taking on new customers may seem appealing, it can in fact be beneficial to do the opposite and increase the deals taking place with existing clients. This could include more face-to-face interactions or offering them exclusive discounts. These strategies require little to now marketing investment, while helping to improve your cash flow to avoid absolute bankruptcy.
2. Explore Any Available Funding
If your business is deemed to be ‘underleveraged’, this means that it has insufficient capital to grow the business effectively, meaning that there are not enough funds to pay employees and suppliers for example.
As such, businesses that are struggling financially could try borrow money elsewhere or get a cash advance loan from a bank if they only have small amounts of debt. These borrowed funds could help to see them through a rocky period. In some cases, you might look at using your equipment as collateral to borrow money, or using your home or offices as collateral.
3. Confront Late Commercial Payments
A great part of why businesses may go bankrupt is because they have allowed outstanding debts to remain unpaid for a significant period of time, which then leads to cash flow issues. It is important to keep in consistent communication with suppliers and any traders that your business may be working closely with. Furthermore, offering early payment discounts may help to incentivise the other parties to pay earlier and avoid this step altogether.
To formalise the process, a business could contact their debtors to provide the other story who owes them money with a reminder notice. If this company still does not pay back their outstanding debts to the business, then a debt collections agency should be considered.
4. Try to Offer Alternative Payment Terms
The majority of businesses will offer payment terms of at least 30 days, and in some instances, up to 90 days. An effective solution to help to restore a positive cash flow for businesses edging towards bankruptcy could be to offer exclusive discounts for their customers who pay their invoices immediately upon receipt, or in advance of the work’s completion.
A business should work out exactly how much discount they are able to offer their customers so that they do not make a loss through this strategy, as well as ensuring it is an attractive offer.
5. Look for Opportunities to Cut Back on Expenses
It is important to hold quarterly or even monthly cash flow reviews to assess any unnecessary expenses that are being made. This could include reducing utility costs by cutting down on office days so that lighting bills will be less, reviewing equipment leases as well as employment contracts, for instance, by switching full-time employees to part-time.
