7 Ways You Can Protect Your Small Business from Insolvency

In this article, we’re looking at seven ways in which you can protect your small business from insolvency.

Running a small business comes with its share of challenges, and the fear of insolvency can be daunting. However, with proactive planning and the right strategies, you can safeguard your business’s financial stability and ensure its long-term success.

One powerful tool that can help you navigate through difficult financial times is a partnership voluntary arrangement. This legally binding agreement allows you to work collaboratively with your creditors and partners to restructure your business debts and avoid the harsh consequences of insolvency.

Moreover, in this article, we will delve into seven effective ways to shield your small business from the risks of insolvency…

What is Insolvency?

This is the term used when a business has reached a stage whereby it is no longer able to meet its financial obligations such as paying creditors and staff. In some cases, this will mean that the business will be put into administration and its assets sold off in order to pay back those that it owes money to.

How to Protect Your Small Business from Insolvency

While there are never any guarantees, there are a few things that you can do to protect your business against insolvency and we’re going to be looking at some of these in this section.

Be Wise with Supplies

A small business will often run on a tight budget, and it can be tempting to source products and services as cheaply as possible. While cost is important it can also prove to be a false economy if your supplier turns out to be unreliable or worse, fraudulent. When sourcing suppliers, check out reviews and testimonials as well as look them up on Companies House to make sure that the business is legitimate, established and reliable.

Get on Top of Your Expenses

Every business has its expenses and, when you’re busy, it’s easy to just go with the flow – meaning that you could be paying over the odds. It’s a really sensible idea to get into the habit of checking your contracts for things like utilities and internet service on a regular basis to make sure that you’re still getting the best deal possible for your company.

Check Invoices

Introduce a sign-off procedure in which you get to lay eyes on each outgoing invoice before it is paid so that you can see where your cash is going. As well as allowing you to spot any errors, this is a good way of identifying areas where savings can be made.

Having a System in Place

While we’re on the subject of invoices, one of the best investments you can make for your business is a good invoice system. Shockingly,55% of small businesses in the UK still have unpaid invoices dating back to 2022 – meaning that precious cash is being delayed or lost. A good system will help you to effectively manage your invoices and send out timely reminders to ensure that as many invoices as possible are paid on time. It’s also worth paying for your staff to be trained on using these systems in order to make sure that your invoicing is seamless.

Getting your kit out

Many UK companies have unused or defunct assets which are gathering dust in either an office or warehouse – and doing nothing to earn their keep. Selling off these assets can bring in some cash if it is needed.

A Partnership Voluntary Arrangement

In times of unfortunate circumstances, a Partnership Voluntary Arrangement (PVA) can be a lifeline for your small business. A PVA is a legally binding agreement forged between business partners and creditors, wherein the business voluntarily commits to a structured debt repayment plan. This effective solution comes into play when substantial debt amounts are at stake, offering a chance for the business to regain financial stability while avoiding insolvency.

Seek Professional Advice

Before making any decisions with respect to the insolvency of your business, you should always consult with a financial business expert. This is a professional consultant who will be able to analyse the financials of your business in order to work out a possible solution which may save your business from administration.

Protecting your Small Business

In the UK, over 99% of businesses are SMEs (Small or Medium Enterprises) however, sadly, a number of these fail every year due to insolvency. Once your business gets into trouble, it can be really hard to dig it out and get back on track.

Because of this, it’s much easier to try to prevent insolvency by getting into some really good habits from the day that your business opens its doors.

Forging relationships with reliable suppliers, educating staff on saving cash and putting systems in place to make sure that invoices are paid on time can all help to make sure that your cash flow keeps flowing in the right direction.

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained legal or business professional. Be sure to consult a commercial lawyer or business consultant if you’re seeking advice on the law or good business practices. We are not liable for risks or issues associated with using or acting upon the information on this site.