If your business is struggling with cash flow and generating it, there are some things that you want to avoid doing that will certainly make matters worse. At this time, you want to be making moves to improve your situation, not dig the hole deeper. There are several things that business owners will want to be careful of when they are struggling to get out of trouble. Principle Insolvency is here to talk about some of the things that businesses will want to avoid doing when they find themselves in financial trouble.
What to Avoid when Your Business is Struggling
Here are some of the top things that business owners who are struggle should avoid doing:
– Preferential Treatment: It might be tempting to prioritize payments to creditors that are unsecured simply because there are personal guarantees. This is problematic because a liquidator can reverse it if they feel there was unfair preference should the company enter into liquidation.
– Increased Exposure to Creditors: Absolutely do not take on anymore credit or debt when you are already facing financial hardship as a business. It can provide you with a false sense of security that can lead to poor business decisions. Focus on reducing your expenses instead.
– Accepting Orders You Can’t Fill: If you can’t fill the orders that customers are making, don’t allow those orders to be made in the first place. It is considered fraudulent trading and can have serious consequences.
– Repaying Intercompany Debt: You should avoid repaying intercompany debts and unsecured shareholder loans. This is another move that will be seen as preferential and can be questioned should liquidation happen, and you find yourself in court for insolvency proceedings.
– Ignoring Creditor Entitlements: Don’t simply disregard the entitlement of creditors. Thre are specific rights that creditors have according to the seventh schedule of the Companies Act 1993. It is vital that you respect these rights to avoid legal action against you.
– Trading During Insolvency: There are serious implications anytime you are trading during insolvency. You can damage your reputation, take legal risks and experience financial penalties.
There are Proactive Solutions for Businesses in Trouble
There are several things that business owners can do when they are facing financial trouble.
– Debt Management: Make sure you’re managing the debt that you do have and work to lower it.
– Inventory Control: Don’t carry too much inventory. It can free up some cash for the business.
– Invoice Management: Work to speed up collections and deal with any issues you have with your invoices right away.
– Increase Revenue: Find ways to improve your cash flow.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If you are facing financial hardship within your company, you can turn to Principle Insolvency to help you understand the options that you have to move forward. We will help you make things right for your business again. Call us today!