Insolvency is not the end of the business story

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Figures just released by the Insolvency Service showed a 33% increase on the number registered two years ago, just before the pandemic.

The IS report also identifies a 73% two-year increase in creditors’ voluntary liquidations, where bosses elect to place their company into liquidation in order to pay its debts.

But is insolvency really the end for a business?

There are four main definitions of insolvency:

  • Unsatisfied statutory demand: failure to deal with a statutory demand
  • Outstanding judgement: failure to pay a judgement debt
  • Cashflow test: when the company is unable to pay its debts on time
  • Balance sheet test: when a company’s liabilities are greater than its assets

But no, this doesn’t mean the end of a business although it is an indication that decisive action is needed. This can involve either turnaround, transformation or possibly a pivot of the business.

Turnaround usually involves making an existing business more efficient and generally this will involve cutting costs which can involve brutal downsizing if a company is losing money. The focus is on existing activities that are profitable and perhaps returning to the core business.

Transformation involves revisiting the business model or product/market mix.

The pivot process involves keeping some essential elements but everything else will be changed.

Deciding which is the best for your business will involve a close examination, a strategic review. A business needs to be sustainable and profitable so firstly you need to identify the resources that are already available to you and these can be divided into physical resources, human resources, intellectual resources and financial resources.

There is more on this in our post here.

Banks and other secured lenders are always significant stakeholders in any company and the loss of bank support usually represents an existential threat to the business.

So your relationship with your bank may prove to be crucial and our Board Briefing may help you assess this.

K2 Business Partners are hands-on investors and turnaround specialists whose aim is to ensure your business’ survival and growth. Obviously, there has to be at least a possibility that your business can be made viable, so our first step is to do an exhaustive review of every aspect, from finances and liabilities to processes.So don’t despair. If you would like to find out more why not book a discovery call to talk to us. Book a call.