It’s no secret that the markets responded unfavourably to the Autumn budget.
Despite an initially promising reaction to the resignation of Liz Truss, confidence in the markets might still be at an all-time low. And with windfall tax due to increase to 35% next year, the Autumn statement has left the UK riddled with uncertainty.
In such a turbulent time for business owners, choosing your next steps might feel complicated. We’ve outlined a few practical tips towards protecting your company finances below.
What is insolvency?
From an accounting perspective, a company is insolvent when it can’t pay its bills or when liabilities exceed its assets. Insolvency differs to bankruptcy, which is an official court order declaring how a company should act to pay back its creditors.
A business or an individual can therefore be insolvent without facing bankruptcy. Within any company, insolvency can arise from a variety of different actions, situations, and circumstances.
The best course of action for any insolvent company is to contact creditors immediately to pay off debts. But it can be difficult to ascertain the legalities, so always seek professional insolvency advice if you’re unsure.
How can I protect my business against insolvency?
- Enhance cash flow
Positive cash flow is the anchor to any successful business.
You can improve and maintain your cash flow by being proactive and organised with your company finances. Send invoices as soon as you’ve delivered a service – because the faster they get sent, the more quickly the cash comes in.
If revenue is falling, you might need to increase prices. Try to keep your sales market as wide as possible, adding new services and products according to local demand. Keep relationships strong with suppliers, vendors, and customers.
- Reduce overheads
Large overhead cuts may be needed to generate cash. Start with investing in your own advertising, then concentrate on research and development. These quick actions can quickly help to boost your cash flow.
Some of the largest overhead costs incurred by small and large businesses include:
- Employee wages and benefits
- Marketing strategies
- Recruitment drives
- Office supplies and equipment
- Building rent and mortgages
- Outsourcing, including accountancy
It’s important to be aware of where your largest overhead spending is taking place. Once you’ve identified the list, try to spot opportunities to cut back and save vital cash for investing back into the growth of your business – or saving for harder times.
- Conduct credit checks and impose limits
Lastly, always conduct thorough credit reference checks for prospective trade partners and clients, implementing clear and robust credit control procedures. If you take business from customers with bad credit, you’ll be increasing the financial risk for your company.
It could also be sensible to take out a relevant credit insurance policy to protect your business against a customer’s failure to pay.