From R3, the Association of Business Recovery Professionals, comes advice, in the form of 'Ten Top Tips', put together by the President of the Association, Frances Coulson. She tells us that taking our business down the insolvency route should always be the last resort and offers the following advice to businesses:
1. Don't max out your business overdraft every month. As we're coming out of a recession, try to make sure you have sufficient capital reserves to take advantage of opportunities that may come your way. If possible, have cash reserves or access to borrowings through your bankers.
2. Produce a business plan with forecasts. Always have a business that will give your business strategic focus. Make sure that your business' actual performance is monitored against the plan and if you go off track, figure out why quickly.
3. Pay accounts on time - look to benefit from discounts and don't delay until there is a legal order. Paying your bills late sends a clear sign to your suppliers, who will eventually grow weary of your ways and may refuse to supply you in future. Pay on time, take advantage of early payment discounts and try to seek goodwill with your supplier. If you can't pay, try negotiating an extension with your supplier.
4. Impose strict credit control procedures of your own. Try to only deal with customers who will pay their debts on time. Insolvency Practitioners estimate that 27% of corporate insolvencies are triggered by another company's insolvency. Make sure you have a broad customer and supplier base, as relying on a few customers could be crippling if they default on their payments. If your debtors aren't paying on time, chase them up. By allowing them to owe you money, you are financing their business.
5. Stay up-to-date with all your payments to HM Revenue and Customs. If you have cash flow problems, you need to ask for a 'time to pay' arrangement from HM Revenue & Customs. So far, they've been sensitive to the needs of businesses in this recession. However, this should only be viewed as a short term fix - money deducted from salaries and VAT does not belong to your business.
6. Don't hold more stock than you can actually sell. In the upturn, the challenge is to have the stock to supply the needs of your customers promptly; this is when you will need to carry a certain level of stock. If you can arrange 'just in time' supplies with your key suppliers, this will minimise your stock carrying costs.
7. Make sure your accounting system is good enough. Have an effective accounting system which produces the information you want, when you want it. Make sure you're on good terms with your bank manager, keep them informed of developments, whether good or bad, and provide management figures regularly.
8. Don't put off seeking professional help. The sooner your business seeks professional advice, the greater are your long-term chances of survival. Seek professional advice from a regulated professional or reputable trade organisation as soon as you can.
9. Don't put personal assets at risk. Don't commit personal assets to the business without taking independent advice first. You could stand to lose the lot.
10. Review underused assets and all unnecessary costs. Assets should be made to work hard for your business. Surplus assets should be sold to generate cash and reduce operational costs. All cost savings will improve your cash flow.
If you want to find out more, or need advice about how to maintain business solvency, contact one of the team who will be happy to help.