How Can a Business Protect Itself Against Corporate Insolvency?

Financial problems are an unavoidable part of running a business. But if your business is unable to keep up with the current financial obligations, it could also result in insolvency. Check out this post to know tips that can help mitigate the risks of insolvency. 

No business owner can claim that they’ve never been through financial problems. No matter what industry you are in or how cash-rich your company is, it is almost impossible to avoid financial issues at times. But while most such problems can be taken care of, some could directly impact the very existence of the company. 

For instance, if your business is struggling to manage its financial obligations for some time now, the problem could result in insolvency. In simple words, insolvency is when the liabilities of a company are higher than its total assets. Such insolvent companies then rely on solutions like filing for bankruptcy or restructuring their debt. 

But even companies that are financially struggling can protect themselves from insolvency in most cases. These tips can help-

1. Focus on Reliable Customers/Clients

Some customers and clients are a dream to deal with, and then there are others that consume a lot of your time and effort and still end up making late payments. If your business is struggling financially, it’d be wise to focus your resources on reliable customers or clients that make timely payments.

This will help improve your cash-flow, enabling you to better meet your financial obligations and protect you against insolvency. 

2. Try to Reduce Business Expenses  

Reducing business expenses is also an effective way to improve your cash-flow. A lot of companies at the risk of insolvency often avoid taking new customers and prefer doing more business with their existing reliable customers as it helps in reducing sales and marketing expenses. 

Some other ways to reduce business expenses are as follows-

  • Outsourcing business processes
  • Leasing equipment and not buying them
  • Implementing stringent business budgets
  • Teleconferencing as much as possible to avoid corporate travels

3. Embrace Modern Technologies

If your company still relies on traditional patterns of work, this can be an excellent time to upgrade and improve the efficiency of your business processes. As compared to conventional practices, modern technologies like automation are more efficient and cost-saving. 

While spending more money on automation when the company is already struggling financially might appear counterproductive, it can definitely help in several ways in the longer run. 

4. Negotiate with Creditors

If your company is unable to pay debt installments regularly and the interest burden is continuously increasing, you can also consider negotiating your debt with the creditors. You can consider increasing the loan tenure to reduce the installment amount or even switch to another bank or financial institution offering a better deal.

You can also consider requesting a moratorium of a few months from your creditor so that you can better focus on your cash-flow without worrying about creditors and recovery agents. 

What If Insolvency Is The Only Solution?

While the steps discussed above are highly effective, not every business on the verge of insolvency might be able to recover from the crisis. When corporate insolvency is the only solution left, it is highly recommended that you should consider hiring an insolvency specialist. 

It is with the help of insolvency experts that organizations could better understand their available options and work towards getting their business back on track. 

Even if insolvency seems to be the only way out, remember that it is not the end, and experts can help you navigate through these challenging times.