In 2022, the total number of insolvencies in the UK was over 22,000. Thanks to high-interest rates and inflation, the economy slammed to a standstill. These numbers are the highest that they’ve been since 2009.
Inflation isn’t the only cause of business insolvency. Bad financial planning and excessive borrowing can also lead to financial disaster.
Underestimating the competition can also set a company back and force the owner to close their doors. In times of uncertainty market research becomes more important than ever.
Want to learn more about what insolvency is and how to avoid it? Continue reading to find out how to prevent your business from going bankrupt.
Also, Read 4 Ways That Business Leaders Can Encourage Investment
What Is Business Insolvency?
Business insolvency happens when a company can no longer keep up with its debts. There are two different types of insolvency.
The easiest one to deal with is cash flow. The company doesn’t have the cash they need to pay their bills, but they have other assets they can sell.
Balance-sheet insolvency is a little more complicated. It occurs when a business doesn’t have any assets to pull from at all.
No Financial Planning
As stated above, there are many insolvency causes. The first is bad business management and financial planning. When spending money on your company, it can be easy to go overboard and interrupt your cash flow.
The best way to overcome this issue is to get advice from company administration services and make sure you always have enough money in your business account to cover your expenses and emergencies.
There may come a time when you have to slow down your company growth to stay ahead, but that’s better than having a failed business.
Excessive Borrowing
Running a company can be expensive. There aren’t many people that can do it without taking out a loan.
You must not borrow more than you need, however. Loans can come with high-interest rates. If you bite off more than you can chew, you won’t be able to keep up with your payments.
Underestimating the Competition
The first step of getting a start-up off the ground is creating a business plan. This will provide you with a blueprint you can follow to construct your entire company.
One of the most important sections of the business plan is market research. You’ll analyze your competition, find out what they’re doing, and learn how you can stand out from them.
If you don’t know why your target audience should choose your products over your competition’s, they won’t either.
Also, Read A Detailed Guide to Understanding Public Provident Fund (PPF)
Stop Your Company From Going Bankrupt
If you borrow too much money for your startup or fail to research your competition, it can cause business insolvency. We hope that you’re able to use the advice that you’ve read here today to prevent your company from running into common pitfalls.
For more tips that will help you keep your doors open, visit the Business & Finance Views section of our blog.
