What is insolvency?

Insolvency is a difficult process for business owners for many reasons. The decision to make your business insolvent lies heavy and isn’t a decision many take lightly.

Unfortunately, in our line of work, we see businesses having to file for insolvency. Because of this, we understand there are many misunderstandings surrounding insolvency. That’s why we make it our mission to break the negative perception of debt recovery and insolvency and provide businesses with the information they need to make the right choices.

What is insolvency resolution?

Insolvency resolution is the process of dealing with insolvent businesses. Insolvency can happen for a number of reasons, including loss of sales, and increased production costs to name a few.

With the cost of living and inflation on the rise; many businesses may find the next few years difficult, to say the least. Ensuring you have the right financial processes in place will offer your business some protection.

What are the different types of insolvency?

As a business, you may be confronted with one of two types of insolvency. Cash flow insolvency or balance sheet insolvency. 

What is cash flow insolvency?

Cash flow insolvency occurs when a business has insufficient funds to meet its current liabilities. This can be due to a number of reasons such as inadequate sales, high production costs, or other external cash flow factors.

Cash flow is essential to ensuring the business is able to continue operating. Protecting your business by creating a cash flow forecast might be the solution you need.

What is balance sheet insolvency?

When a business’s assets are worth less than its liabilities, it is said to experience balance sheet insolvency. At this point, the organisation has accrued a negative net worth and may struggle to uphold its financial obligations.

How do businesses prevent insolvency?

To prevent businesses from becoming insolvent, there are a few steps you can take:

– Monitor cash flow: Make sure you keep a close eye on cash flow management, as this is key to keeping your business from becoming insolvent.

– Analyse and monitor your debt: Make it a routine to analyse and monitor the amount of debt you have and when it needs to be paid back. You should also prioritise the high-interest debts to ensure you aren’t spending more than you have to.

– Create a budget: Prepare a detailed budget that shows how much money can be spent on essential items, and how much can be saved.

– Consider debt consolidation: If your business has a lot of debt that needs to be paid off, consider consolidating it into one loan with a lower interest rate. This will help you manage your repayments more effectively as well as keep control of your debts in one easy payment.

– Obtain professional advice: If you’re worried about your business’s financial situation, it’s always a good idea to seek professional advice.

At the end of the day, an insolvency process is not an easy process to go through. But with the right knowledge and guidance, businesses can prevent themselves from becoming insolvent. With My Debt Recovery’s expertise in debt recovery, you can rest assured that we can help you obtain unpaid invoices and other funds to help prevent cash flow insolvency.

If you are having trouble claiming unpaid debts, contact our team today.