Insolvency — and how your business can avoid it
You can beat insolvency by preparing early
When your business figures look bad, it’s natural to react in a knee-jerk way. But that’s not going to help you solve the root of your insolvency problems.
No matter how hard you work to keep afloat, unless you isolate and resolve the specific issues that are causing insolvency, you’ll never get by. Luckily, you don’t need to go to business school to work out what the problem could be.
Anvil help all kinds of businesses overcome insolvency, so it’s fair to say we’ve seen it all. We want businesses to thrive — so we thought that sharing a list of the 10 most common reasons for insolvency could help.
Read on to find out, and see if you recognise any of these issues as affecting your business.
The 10 most common causes of insolvency
1 Poor preparation and implementation
Business planning can help you make the right decisions early on; and guide your hand as you implement the ideas that will keep you solvent. This avoids the need for making rushed decisions under pressure — trust the plan.
2 Lack of cash flow
When more money is flowing out than coming in, you have a problem. Improving your margins, speeding the flow of money into your business, and negotiating better terms will help, as will setting up borrowing: all factors that can be done well in advance of the problem happening at all.
3 Over-trading and reliance on one key client
When it’s going well, the relationship seems to flow perfectly. But as soon as either of you has an issue, insolvency can follow. Improving your marketing, diversifying your offer and customer base, products and service development — is it time you thought beyond your one big client?
4 Poor bad debt recovery system
Don’t write off bad debts before you have to. Having a proper system in place to recover them, whether that’s internal resourcing or contracting outside professionals, means you can claw back the money that you’ve rightfully earned.
5 Sticking your head in the sand
There’s a reason nobody does business with ostriches. In all seriousness, ignoring the problem and hoping it will go away really helps nobody. You’re risking your business, but also the livelihoods of people relying on you, as well as the other businesses who work with you and depend on your stability. Do the right thing, and you’ll save more than just yourself.
6 Lack of reinvestment in the business
Your business is not written in stone; it is not preserved forever as an unchanging entity. It’s a living thing that needs to be fed and nurtured to grow. Reinvesting in the business is not throwing money away: it’s a system to amplify the effects of your money over time. If you believe in it enough to invest in it, then others will believe in it too.
7 Failure to separate business and personal spending
It’s your business, but it’s not you. There’s a clear difference between your business and personal life, and your spending should reflect that. Is your spending really to benefit the business’ growth? Will it help improve returns, drive profits, gain customers? If not, then think twice.
8 Poor systems and a lack of reliable information
These days there’s no excuse for avoiding modern systems. We’re all living in the digital age, or at least we should be. For the first time in history, you can have all your financial information at your fingertips instantly, and can truly be in control of your business at every level. Get excited about that: it’s a thrilling prospect you should seize immediately.
9 Taking your eye off the competition
While your competition may be guilty of any (or indeed, all) of the problems listed in this article, don’t be lulled into the idea that they’ll be floored by their faults forever. Complacency kills businesses, and your competition are only one reinvention away from taking you down. Stay ahead of the pack — innovate, research, stay up to date and audit the market obsessively.
10 Poor budgeting
Better planning, better systems, better investment — there are plenty of ways to overcome poor budgeting, and ignoring the problem is not one. Don’t expect budget issues to resolve next time around — investigate what went wrong, isolate the causes, and action a suitable response immediately.