Useful Suggestions for Avoiding Business Liquidation
If you are of the view your company may be insolvent or become insolvent there are a few key areas to focus on. Whilst each company is different, we have identified a few key strategies that you could consider and apply to your business when conducting a review. Please note: this is legal information and not legal advice and if advice is required, you should contact on of our friendly staff for a confidential conference to discuss you specific situation.
Remember the definition of insolvency is able to pay your debts as and when they are due and payable!
- Have the right priorities with debt repayments – Prioritise secured debt
You should look to focus on secured debt, such as loans secured against business equipment first. The result for defaulting on this debt is the loss of the equipment, which is another blow to the business. Paying off high interest debts first is another critical priority, as that is going to accumulate faster if not paid off quickly.
Focus on your secured debt obligation especially if a financier has a charge or personal guarantee against either your company or personal property.
- Increase your short-term cash flow
It can be a pain chasing invoices, however, calling in what you are owed is critical to your businesses cash flow. Another strategy is reducing the time frame for your payment terms or even offering a discount to your client’s or customers if they pay quickly (say within 7 days). This will incentivise your customers to pay sooner.
Conversely, negotiate with your lenders to ascertain whether you may be granted extensions for repayments. That way you’ll have more money coming in, and fewer repayments due imminently, and that will provide you some more money to start dealing with the most pressing debts.
- Re-asses your Business Plan and strategy
Every business owner should start out with a solid business plan and review it regularly.
Most business plans survive the owner’s abstract ideas and instincts. Let’s say you’ve worked at an accounting firm for five years and now you want to start your own. You might know the costs and practices that go into running an accounting firm, but have no knowledge of the business end. A written proposal must cover the sales, operating budgets, cash flow, capital expenses, performance objectives and tracking methods. Review the business plan and reassess and review your strategy.
- Review your expenses
Non-essential expenditures should be reduced. These expenses are the types that do not add value to your company. Newspaper subscriptions, lunches out, and gym memberships are not necessary for your business operations and should be reviewed. Review your finances, and cut down expenses that are not necessary to the daily operations of your business.
- Sell assets you no longer need
Do you have any equipment you have not used in a couple of years? Sell it all. Use the profits to pay for your debts. You get to clear out unused assets, and you get extra office space which is the best of both worlds.
Contact Roser Lawyers or on 02 9232 3792 today to start discussing your options for your business and its turnaround.
Disclaimer: The above is general information and not legal advice if you required advice in relation to your business and the options available to you, please contact our office.