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When is it right to Liquidate your company?

The timing of your Voluntary Liquidation really does have a direct impact on how smoothly your Liquidation will go.   Most Directors come to us much later than they should have done, creating hurdles that just don’t need to be there.  Deal with it early and you will find it so much easier.

business balance sheet

We all have a strong bond with our businesses.   We have put a lot of personal effort in to get to this stage, so we will not just give up on it at the first sign of trouble.    This is OK initially, but don’t let it drag on.  As entrepreneurs we tend to be naturally optimistic, there’s always a big sale just round the corner.   But if that corner is getting further and further away, we have to draw a line for everyone’s benefits – yours, your employees and most importantly your creditors.

We end up fire-fighting to keep our business limping on.   Then lose focus on our long term goals, without noticing it our company is dying, we just don’t want to see it.

This creates a risk of trading the company insolvently without realising it.   Unfortunately, ‘because you didn’t realise’ doesn’t count as a defence.

By recognising the signs early on, you:

  • Give any new business a good chance of survival
  • Reduce the risk of legal complications
  • Keep better relationships with existing suppliers
  • Can focus your efforts on making your new business successful

Recognising the warning signs

For many Directors the first time they think they should start considering Liquidation is when they have no money in the bank, this is usually 3 months later than it should be.   Their company was insolvent before that point, they just didn’t see the signs.

  1. If you are late paying your bills, because you haven’t got the money for a few weeks. If you’re not paying them so you want to hang on to the money that’s different, but when it’s because you haven’t got the money, and it happens regularly then you probably have an issue.
  2. Sales enquiries have dropped. This is especially true when you have a long lead in time on sales. Maybe 2 or 3 months, by the time the drop in enquiries has filtered through to actual sales figures, you’ve waited 2 or 3 months longer to react than you should have done.
  3. Late filing returns. Once we get caught up in the routine of trying to getting money in to pay for essentials, things like returns and books become an obstruction. In fact we can actively avoid them, as it means we don’t have to look at the financial side of the business which is a reminder that we have a problem.
  4. Loss of financial investment. This can be a loan or investment, suddenly a pool of money has gone and we have to rely on just the cash flow of the business, which can be like taking a cold shower.
  5. Legal action. This can be threatened or actual legal action. It may be a supplier threatening you with a court action or it may them actually taking you through the CCJ mill. Whichever one it is, it shows a potential problem.
  6. Late paying staff. This can be for two reasons – you have too many staff or too little money.  Either way you have a problem.  If you make the staff redundant, what are the costs going to be?  If you can’t afford their wages, can you afford their redundancies?   This is a problem we see time and time again and it’s easy to ignore for a while, often making the whole process more difficult when it does come to a head.
  7. Having to sell assets to fund essential cash flow. It’s tempting to think that raising from your assets is sensible, and it is, when it’s affordable and doesn’t have an impact on your business operation. However, if you are having to sell assets off to pay wages, then you have an issue.

With most of the signs, they can be part of normal business life, they become a problem when you HAVE to do them for cash flow, not because you want to do them just for good business judgement, or you have other things to do.

So what if you have one of these signs, what then?  If it’s the first time it’s shown up, then it may not be a long term issue, but you should be on notice that this is a potential problem that needs monitoring.   You’re judgement comes into play now, generally speaking if you see two signs then you probably have a problem.

If you take nothing else away from this, if you show any of the signs of a problem, then talk to someone. It is important you take advice as early as possible, it saves you a lot of potential problems later on.

Just because you’re taking advice it doesn’t mean you are Insolvent, you are just making sure you know what you have to do if it gets worse.

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