Avoiding Insolvency: 5 Top Tips

Business Insights

Multiple economic headwinds have caused the number of business insolvencies to rise in 2023 compared to recent years. Rising inflation, Russia's invasion of Ukraine, and the cost-of-living crisis have all played a part in pummelling businesses still reeling from the COVID-19 pandemic.

Despite this, many businesses are still starting up and even flourishing, but it's important not to become too complacent. These are challenging times for any venture, and it makes sound business sense to guard against any other unforeseen circumstances by ensuring your business is as healthy as possible moving into the new year.

Best-practice procedures for day-to-day operations can easily be overlooked by businesses that are finding success without necessarily implementing them, but this can be a dangerous mistake. Transient success can mask vulnerabilities within your company that can be exploited overnight by outside influences. If COVID-19 and the sanctions against Russian businesses have taught UK businesses anything recently, it should be to expect the unexpected, or at least prepare for it.

Improve cash flow

The best thing that any company can do is to shore up its cash flow so its dependably at a certain level. Monitor your reserves over a month or two and look out for any instances where they might be lower than you'd like. If you find any issues, an easy way of improving your cash flow is by renegotiating terms with vendors and suppliers. If you think they're unlikely to move on price, try to arrange a more favourable payment option instead. Even a longer payment term alone can make a huge difference.

In an effort to ensure that clients are paying their invoices quicker, you could look to revamp your own payment policy too. If you can't reduce the time allowed to pay, perhaps you could consider incentivising early payment with a slight discount instead.

Spread your risk

Take a leaf out of the book of successful stock traders by diversifying your interests. If you only produce one product, or only provide a service to one niche sector, then any disruption to that industry, or even one related to it, can derail your company as well. Look at business-adjacent services that competitors offer for inspiration, or even things that your customers often ask for. For example, if a home removals firm is often asked for recommendations of end-of-tenancy cleaning companies, it may be worth looking into a potential expansion in that field.

Look for unnecessary expenses

While avoiding unneeded expenses seems like obvious advice, it's certainly something that bears repeating. Most of us would be able to find at least one unnecessary expense among our monthly outgoings, with things like travel and superfluous office services often the main culprits. With the widespread adoption of platforms such as Zoom, traveling for business meetings can usually be avoided.

Nurture relationships with suppliers

Take time to talk to suppliers and make sure that you pay any invoices on time. If any shortages are to arise in the future, you want your business to be near the top of the queue for any limited stock. Similarly, you should look to have a secondary supplier in mind should any problems occur.

Good suppliers will be in touch regularly to check if you'd like to change over to them. Rather than dismissing them as a nuisance, take this opportunity to steadily build a relationship with them in case you ever need to switch.

Don't be tempted to cut back on marketing

Many businesses make the mistake of cutting back on marketing costs once they start enjoying success, but this can see business suffer over the long term. A strong marketing campaign can keep your business in the minds of customers when they need your service, and similarly make them reach out to another company if theirs is fresher in the memory.

Even struggling companies shouldn't skimp on their marketing efforts. Advertising your business should be seen as a crucial part of your operation rather than a luxury.

Different marketing methods are effective for different businesses, however. Take a look at how your campaigns have fared recently, and experiment by switching to another marketing tactic if yours hasn't produced the results you'd like to see.

Forbes Burton have helped countless companies recover from tricky financial situations. Unfortunately, we've also encountered many that have waited until their problems are irreversible before reaching out. While we're able to use our vast experience in the field to guide businesses through an efficient closure, we're always pleased to be able to turn around the fortunes of distressed companies instead. The earlier that struggling companies reach out to business recovery services, the more likely their businesses can be saved. Hopefully, by implementing some of the tips listed here, more companies can continue trading healthily despite the current economic climate.