10 Steps to Take if Your Business is Going Bankrupt

StrategyDriven Your Finances Article |Going Bankrupt|10 Steps to Take if Your Business is Going BankruptIf your business is facing the prospect of insolvency, deciding what steps to take can prove to be incredibly tricky. If that sounds familiar, then the following post should come in handy…

The prospect of going bankrupt is something every business needs to consider. In an ideal world, every business would be successful enough to bring in a steady cashflow and keep themselves operating at a sustainable level. Unfortunately, though, we don’t live in an ideal world!

If your business is in debt and is no longer in a position to repay this, it might be necessary to file a bankruptcy petition (also referred to as insolvency petition). This is where a business has to restructure their company debt, contacting their debtors to arrange manageable payment instalments or liquidate assets to pay off outstanding debts.

In this post, we’ll be informing you on the 10 steps, like these, you need to take if your business is facing insolvency or bankruptcy proceedings. This way, you can be sure that you come out the other side with your business still intact.

10 Steps to Take for Businesses Facing Bankruptcy

1. Take Stock of Existing Debts

First things first, if your business looks to be staring down the barrel of bankruptcy or insolvency, then you need to take some time to account for all of your existing debts.

Take stock of who all of your existing creditors are, how much money they are all owed and when the debts are due to be repaid. This will allow you to effectively plan out and prioritise the debts, which will help to prevent the situation from escalating any further.

2. Contact Creditors Directly to Reach an Informal Agreement

If you’re familiar with your creditors, then it’s certainly worth getting in touch with them directly to see if you’re able to come to an informal agreement regarding your debts.

Whether or not you’re able to come to an informal agreement is context-dependent, but there’s no harm in reaching out to them. There’s always a chance that, if you’re seen to be proactive about the situation, your creditors are more likely to work alongside you, rather than against you in the form of legal action.

3. Always Act to Maximise the Interests of Your Creditors

Becoming bankrupt or insolvent will, of course, have a big impact on your business’s general cashflow and company revenue. However, you need to remember that you should always concentrate your efforts on the interests of your creditors, as opposed to generating your profit.

This will prevent your business from incurring further debts, which will leave your business in an even more precarious position.

4. Keep Your Employees in the Loop

If you have employees under your watch, they have a right to know what sort of situation the business is in. You don’t have to fill them in on every single minute detail (unless they are keen to know themselves). However, you should be open and honest about the fact that you could be heading towards bankruptcy or insolvency.

Your employees will then have a better understanding about what their priorities should be. They may even be able to play a part in keeping the business running and out of further financial trouble.

5. Carefully Consider Certain Assets That Can be Liquidised

If you know that you’re going to struggle to repay your debts through traditional means, or you can’t make a sensible payment structure with your creditors, then you should consider the sorts of company assets that can be liquidised to pay off the debts.

These will usually be assets that can be considered non-essential (for example, company cars).

6. Speak to the Insolvency Service

The Insolvency Service is a Government agency that helps to deliver economic support and advice to businesses who are in financial distress. They focus on tackling any financial wrongdoing and maximising returns to creditors.

They aren’t allowed to give your business any legal or financial advice. However, they’re on hand to give you information about the processes related to bankruptcy, debt relief orders and liquidation.

7. Weigh Up Alternative Finance Options

There are a number of different alternative finance options you can consider for your business if you’re facing bankruptcy or insolvency.

For example, you might want to consider invoice financing. This is where a third-party provider agrees to buy your unpaid invoices for an upfront fee of up to 85 percent of their value. The finance provider then collects the payment from the debtor when it’s due and pay you the balance, minus a small fee.

8. Restructure the Business

You may need to restructure the business in the short term to ensure that your creditors are paid. This will involve everything from looking at your current staff, outsourcing work, downsizing or moving your office premises.

These changes don’t have to be permanent if you don’t think they would be appropriate for the long term – though many businesses find that making these changes are vital for the survival of the business.

9. Enter into a Company Voluntary Arrangement (CVA)

A company voluntary arrangement (CVA) is a formal and binding agreement between an insolvent company and its creditors. This is for the payment of a debt in full, or in part, over an agreed period of time.

They typically last for five years and, for them to be agreed, 75 percent of the company’s creditors must agree to accept the proposal. Once the CVA has been agreed, your business can resume trading.

10. Inject Personal Money into the Business

This is a risky strategy and should only really be considered if there are few other alternatives. Many directors and business owners inject personal money into their business when times are hard, either through a personal loan or a credit card. It’s seen as a sensible approach, according to an independent financial advisor.

Is Your Business Facing Bankruptcy or Insolvency?

And there you have it! If your business is facing a threat of bankruptcy or insolvency, the steps outlined in this post should give you a better idea as to what you can do to ensure that you’re able to come out the other side stronger.

If you’re facing bankruptcy, or have already been through bankruptcy proceedings with your business in the past, why not leave a comment below with your own tips?

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