How can I avoid insolvency

The UK is one of the best places to do business in the world.  Yet the current economic conditions of high inflation and problems with resources has meant there is a chance you may be thinking of your business right now and asking the question “how can I avoid insolvency?”

You are probably involved in the business daily and emotionally invested in it, so it is not always easy to know when your business is heading towards problems.  You may think it is just a slow-down or a “rough patch” that you are going through.

But when does the slow-down become a slump?  When does the temporary rough patch become something more permanent?

The best thing you can do is act before it becomes too late.  Evaluate how your business is doing in 2022?

There are always warning signs and the important thing is to focus on those signs and take some solid action.

Know when you are in trouble

Before you even know where to go for advice, you need to realise that things are not how it should be.  We are encouraging our clients to keep in touch with us regularly so early signs can be picked up. But as a business owner you will know when you are experiencing turbulence.

You are the first expert in your business especially if you have had it for a while.  You will know if everything is not okay and you will have started making some decisions such us cutting out some costs, paying suppliers later or maybe even changing your strategy.

If this is you, get in touch with your accountant!  Now is the time to get in some professional help!

Seek advice early

With any problems early intervention gives you options.  By seeking professional advice fast, it means there are still ways to save your business.  Together with your accountant you should go through your cash flow, your profit margin (and any significant changes) and your borrowings.

Depending on the answers to the various questions, there may also be the option to speak to an insolvency practitioner who can suggest ways to steer the business in the right direction to ensure survival.

Another advantage of seeking help early is so you can go through all the points below with someone else who has the experience and is willing to help you quickly.

Carry out a business review

The business review should reveal your key statistics.   By carrying out a review regularly not only do you spot the early signs of trouble, but it is also a way to see if you are on your way to achieve your objectives.

Specific indicators depend on your own objectives but here are some main ones that you should look at, especially when your business is in trouble:

  • Sales revenue

  • Fixed costs

  • Variable costs including wages

  • Gross profit margin

  • Net profit margin


You should look at the changes in each of the key indicators on a month-by-month basis. For example if your margins are decreasing even if your sales are increasing, you are going to have to look at your pricing in the long run.

Cash flow management

After you have carried out a business review, you should keep on top of your cash flow.

If you are in business, it is not enough to simply know that you make a profit.  The most common reason for business failure is because owners do not focus enough on their cash.

When cash starts drying up and you can’t pay your bills on time that’s when things get hard.  When you are defaulting on your bills there are clear signs that your business is in trouble. So why wait for this?  Act before you get to this stage. Monitor your cash regularly or work with a professional so you get advice regularly like on a monthly basis.

The old saying “cash is king” is still used today for a reason.

Utilise HMRC’s Time To Pay

Defaulting on HMRC liabilities such as VAT, PAYE & Corporation Tax can be damaging.  It means that HMRC will constantly be chasing you for debts adding another layer of stress.  If you are not able to pay your bills on time, call HMRC ahead of deadlines.

Since the pandemic they have been very helpful overall and will accommodate most suggestions that are reasonable.

Debtor review

All businesses are going to have to manage their cash carefully as we move forward including your customers and clients.

You may have to pay for your goods upfront as well as paying your staff every month, even though your customers will typically take 30 days or more. Are there ways you can speed up the number of days?

Being aware of debtor days can help to reduce bad debts because it is far easier to clear up a dispute shortly after the work was completed, rather than six months later.

Recovery plan

Having sought advice early and carried out a business review including looking at your cash and debtor position, the question will be whether the business can continue.

If your business is not viable then you should be considering a Creditors Voluntary Liquidation whereby a liquidator is appointed, and the directors work alongside him or her.  The job of the liquidator is to realise any assets and repay the debtors.

But you may be able to keep your business and carry on with some changes. You have the option to use a Company Voluntary Arrangement (CVA) which will allow you to reorganise your debts thereby giving you longer to repay.

The thing to appreciate here is the longer you leave taking decisions when troubles start, the harder it is going to be and with fewer options.  You could lose out on CVA being an option if you do not address a failing business speedily.

It would be a total shame to lose a viable business that was worthy of being saved.

So don’t wait, call us now if you are worried about your business.  Speak to your normal director or manager.