How To Manage The Stress Of Insolvency

It’s common for businesses to experience financial stress from time to time. Various issues can cause problems with cash flow, from late customer payments to dips in revenue and unexpected costs. But if you become unable to pay your bills on time and debts begin to mount up, its easy to feel as if there’s no way out.  

Insolvency is a serious matter after all – and one that understandably causes tension between creditors and businesses. It’s not uncommon either, with 12,557 insolvencies recorded in England and Wales last in 2020. But with a calm and decisive approach, you could still turn things around, pay off your debts and recover to a position of profitability.   

Read practical tips for managing the stress of insolvency and keeping your business afloat below.

Speak to your creditors

First things first is to be honest and upfront with those you who hold your liabilities. While you may need to prepare for an awkward conversation or two, avoiding contact until it’s too late is only likely to foster more hostility.  

Your creditors could be willing to offer you some leeway by reaching an informal repayment agreement. After all, giving you a little more time to pay could be less costly and time-consuming than taking legal action.

Consider finance options

While you may be able to explore other ways of improving your cash flow such as improving revenue or selling assets, securing short-term finance will usually be one of the faster options.

You may find traditional business loans difficult to get approved for in your situation. In this case, invoice finance might be a viable alternative as it’s effectively secured by unpaid invoices that you may otherwise be waiting up to 90 days for.

Carry out a restructure

Restructures are a popular and potentially transformative solution for businesses in crisis. You could focus on either people, processes, your balance sheet or all three to make your business more viable in the long-term.  

Observe your competitors and what it is that makes them successful. Outcomes of a restructure can include:

  • Changing staffing levels to reduce overhead
  • Cutting back on unnecessary expenses
  • Downsizing to different premises
  • Renegotiating key contracts

Chartered accountants and consultants can advise on complex restructuring matters such as rationalising the organisational structure of your business group, to save tax or administrative costs. The best consulting books or business books in the short term could help suggest ideas that other businesses implemented before a turnaround in performance.

Get outside help

If you’ve explored all these avenues to no avail, contacting insolvency specialists could help to ease pressure and quickly secure an outcome that works for all parties.

This might mean beginning a formal insolvency procedure such as a Company Voluntary Arrangement (CVA), which allows you to repay a debt over an agreed period of up to five years. Your insolvency practitioner will negotiate with your creditors on your behalf. This helps businesses avoid total bankruptcy, which in the UK is known as entering administration or liquidation depending on the circumstances.

If your creditor agrees, you could even resume trading in the meantime.

Insolvency doesn’t have to be the end of your business. Follow these steps above to manage the situation as sensibly as possible.