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In these rapidly evolving times, demand from consumers is shifting, product availability has changed, and costs are becoming unmanageable for many businesses. If your company is experiencing financial trouble and you can’t see a simple way out, it may be time to explore insolvency.

Many business owners assume that becoming insolvent means liquidating. When this happens, a liquidator is appointed to sell off assets and repay debt, and the company must stop trading while this all takes place.

The good news is there are alternatives, and you can solve insolvency without liquidating. Here’s a rundown of your different options to resolve your situation and stay in business.

Pay your creditors

If you have fallen behind but the business is turning around, you may be able to arrange to repay the providers you owe money to. You could take out a loan or you may be able to negotiate a payment plan with the tax office (be aware you may be charged interest on your tax debt).

With the tax office, it’s essential you reach out and set up a payment plan before you start receiving penalty notices as a result of not paying your bills.

If you decide to take out a loan to repay your creditors, make sure you can make the repayments before you commit. You may be able to secure the loan against some assets, which will minimise the risk for both you and the lender.

Find a way to consolidate your debt

Speaking of loans, if you have several different accounts and credit cards that are overdue, a loan from the bank or another lender may make everything more manageable and lighten the load thanks to a lower interest rate. This might be a good time to review your current credit situation with a finance broker.

Raise capital

If an injection of funds will put things on the right track, you may be able to ‘lend’ to the business from your personal funds or find an investor who is willing to contribute financially in return for part-ownership or other compensation.

With this being said, you need to have confidence that you’re not just digging a deeper hole for yourself. Work with your accountant and financial planners to do some forecasting so you have an idea of what’s actually possible.

Did you know Apple was on the brink of bankruptcy at one stage? It was Microsoft that saved the day, by investing quite a few million.

Review your income and expenses 

It is very easy to say ‘just earn more money’ but a lot less simple to do so. However, with a combination of strategy, great people, good market knowledge and a product or service people want, you can reinvent your business model and get back on top.

You may need to do some deep diving into your finances to figure out what has gone wrong. There could be expenses you can eliminate, and you might have to let some people go but recovery is never impossible. Sometimes growing the business is not profitably and scaling back will help increase profits.

Marvel was in a terrible position in the late 1990s before it started making movies off the back of its popular comic book titles. Its partnership with Disney means it’s one of the most successful brands in the world.

Find a buyer

Many brands avoid going from insolvency to liquidation by selling to a larger company. This may be an option, especially if you have IP or products that are in demand.

If you decide to sell to cover the cost of your debts, you don’t necessarily have to do so at a ‘bargain basement’ price. Work with a legal and accounting team so you sell for fair value and do so in accordance with the law.

The benefit of selling your business is being able to repay your debts while your staff keep their jobs. The purchaser will take the responsibility of restoring client relationships and getting cash flow back in shape.

Make sure you discuss your Capital Gains implications with your accountant prior to any sale.

Solving insolvency without liquidating

The best thing to do if you’re facing overwhelming business debt is to get the advice of a professional. A specialist insolvency lawyer can help you explore every option, make the right decisions and come up with a plan so you can side-step liquidation.

Need help to make a call around insolvency and liquidation? Reach out to Crest Lawyers today.

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.