Running a business, a company of some kind, was never an easy job and it will never be. Even if you are the perfect business owner and make only the correct moves, there is still a chance that you and your company will find yourselves in a bind, to put things mildly. Today, we will be talking about one of the greatest problems your company can face – insolvency.
What is it?
Insolvency, broadly, denotes a situation in which an individual or a company (we will deal with this option today) is unable to take care of the debts they have. There are two types of insolvency – cash-flow insolvency and balance-sheet insolvency. Cash-flow insolvency means that the company does not have liquid assets needed to pay the debts, but that it still has valuables that can be sold in order to pay them. Balance-sheet insolvency is a more serious type where there are no assets whatsoever that could be used to cover for the liabilities.
Is Insolvency the Same as Bankruptcy?
It is not. Bankruptcy is a formal determination of insolvency that a certain court of law makes in order to resolve the said case of insolvency. Bankruptcy also means that the company has to end all business and it effectively ceases to exist. Insolvency can be handled and mitigated so that it does not come to bankruptcy which is something most business owners will want to avoid.
What Can be Done about Insolvency?
A good business owner will see the signs that their company might become insolvent well before it actually happens. For example, their business will slow down and their income will drop. They will also notice increased expenses which can also lead to insolvency. Once they do notice this, they will do everything in their power to take care of the situation even before it leads to insolvency.
They might need to make painful cuts in their company, let some people go and try to reduce the costs of operation. They might want to approach additional investors who will put additional assets into the company. Another loan might actually be of use in such a case, pushing the company over the hump back to health.
When is It Time for Professional Help?
Unfortunately, a business owner may not always be able to take care of the problems that are leading to insolvency. In such situation, they will need to seek professional help. For example, there are insolvency practitioners who specialize in helping business owners deal with insolvency. They will try and arrange different deals in which the company will be given time to restructure and find the assets to pay off their debts.
In addition to this, you can utilize insolvency software such as Encompass which was developed in order to give business owners and their partners a more comprehensive overview of the situation they are in. With this software, the assets and the liabilities are represented graphically and this allows for quicker reactions, more efficient decisions and, ultimately, more success in handling insolvency.