Running a business is never easy. There are many ups and downs especially when you are just starting out your career. And sometimes, when things don’t go out your way, your company may become insolvent. However, insolvency isn’t actually the end of your business. There are still options you can do to save your company from closing but let us understand first how insolvency differs from bankruptcy.
Many businessmen have thought that insolvency has the same context as bankruptcy. They are both, however, have the same definition wherein a company or business is no longer able to pay their bills and liabilities, but the latter is a legal term given by the court. In that case, a company may be considered insolvent but is not yet bankrupt unless otherwise declared by the court. Fortunately, this financial situation can be avoided if you just know how to monitor your assets properly. It helps a lot in keeping your business alive to lower the risks of failure.
According to the Insolvency Act of 1986, a firm’s insolvency can be measured thru the following cases:
- When a company has a lot of past dues because it can no longer pay its liabilities on time.
- When a company’s liability exceeds its total value of assets.
- When a company received a statutory demand for an unpaid balance right after being due for at least 3 weeks.
Therefore, in order to prevent your businesses from facing all these dilemmas, we have prepared tips for you on how to avoid or prevent insolvency in your firm.
Look for an Adviser
When having a business, it is vital to seek professional advice especially when it comes to finances. Money is the blood of the company so proper handling of assets is very essential to lower the risks of insolvency. Thus, refer to a financial advisor or an עורך דין חדלות פירעון like Adv. Maor Levi if you are from Israel so that you will be guided properly on how to resolve or prevent insolvency in your business. They will help you negotiate with your creditors to lower or set other payment arrangements.
Ask your creditors for negotiation
With the help of your lawyer or advisor, you may ask your creditors for negotiation if you are suffering from a financial crisis and would soon become insolvent. You may request for a longer time and lower interest rates to repay your debts. However, you must also show them that you have plans on paying them so that they will agree to your new arrangements.
Find other ways to earn some extra money
The more you can accumulate extra income, the more money you can allocate to pay your debts. Thus, it will result in positive feedback that can help your creditors be more willing to agree on your negotiations. You can either apply for another job or sell your assets so that you can save more cash to be used for your obligations and to avoid penalties or late fees.
Consider having a debt management plan
Once your creditor agrees with your negotiation, you should resort to a debt management plan to consider your stability in paying obligations. As a rule of thumb, do not take new debts just to pay your other debts because that will only accumulate more payables. Therefore, you must always consult professionals in making debt management plans to further guide you in avoiding insolvency.