As a general rule, your goal when running a small business is to reach an equilibrium point where the revenue you take in matches the expenses you pay out each month. If you can get to this “sweet spot” where your cash flowing in and out are equal, you just might have a chance at running a business that’s financially viable over the long haul.
Sometimes, though, it’s just too difficult to reach this point. Running a business requires having a good handle on a lot of moving pieces – your facility, employees, supplies and so on – and sometimes it’s unavoidable that you hit a rough patch and can’t find the available capital to pay for them all.
In this situation, you don’t necessarily have to give up. Believe it or not, you do still have options – it just might take a little hard work to do some restructuring and devise a strategy for paying down those debts. In that vein, one possible course of action for debt-saddled small businesses is to consider voluntary administration or liquidation.
How liquidation works
If your company is having trouble generating sufficient revenue on a month-to-month basis, you may reach the point where you become insolvent. Essentially, this means you’re unable to pay all of your existing obligations as they become due – you owe more than you can possibly pay. If this happens, and there’s no easy way out of the situation, it might mean liquidation is your best course of action.
This means that, at least for the time being, your company’s operations will have to come to an end. You cease to control your business or its assets – instead, everything is divvied up among creditors and shareholders, and at the end of the process, your company is dissolved.
Logistically speaking, the difficult part of liquidation is ranking all of your debts in order of priority and paying them off accordingly. For this, you will need to bring in outside help.
Breaking down the procedure
When your money problems really start to build up, you reach the point where it’s no longer realistic to handle all of them yourself. Fortunately, when you’re going through the liquidation process, you don’t have to. Instead, you’re appointed a liquidator – either voluntarily by the company shareholders or compulsorily via court order – to handle the process for you.
The liquidator’s job is twofold. First, he collects all of your company’s assets and completes a comprehensive assessment of what you control and what you owe. Then, he devises a strategy. Which debts need to be paid off, and in what order? Figuring out this sequence of events is essential to overcoming whatever money troubles your business is facing.
What this all means for you
Conventional wisdom says that insolvency is “the end of the road” for any business. Once you reach the point where you can no longer cover your debts, it’s time to throw in the towel and officially surrender. The truth is, this isn’t necessarily what insolvency means. It’s not necessarily the end for your business – it may just be the start of a new chapter.
In many cases, insolvency simply boils down to a cash flow issue. Your company is making money and still has the means to pay what it owes, but the timing is off and the capital isn’t available when you need it. In this situation, it’s not possible for you to pay your debts as scheduled, but it might be possible to overcome your troubles with a little bit of strategic thinking.
This is where the experts at Corporate Lifeline can help. Whether your business just needs a couple of minor tweaks or a wholesale company restructure, we’re here to help you find the best possible course of action. Let’s work together to get your company back on the right track.