What To Do If Your Company Is In A Financial Mess!

Running a company today can be a tricky business and with most companies going bust in only their first year of business, it is likely your company will run into financial difficulty. However, there are steps you can take to make it all a little easier.

What To Do If Your Company Is In A Financial Mess!

 Running a company today can be a tricky business and with most companies going bust in only their first year of business, it is likely your company will run into financial difficulty. However, there are steps you can take to make it all a little easier.

It is vital directors make an early decision as to whether or not the business should cease trading. By continuing to run the business past a sensible point, the director may have to contribute personally to any losses which can lead to investigation by the DTI (Department of Industry). By law, if a company is trading whilst insolvent, the director becomes liable as they knew, or at least should have known that the company could not avoid bankruptcy. At the point when the director knows the company cannot avoid going bust, they are legally required to cease trading immediately and initiate liquidation of the company. The director of a company facing financial difficulty should therefore ensure it is reasonably likely that the company can avoid going bust before making the decision to continue trading.

The decision whether or not to continue trading can be an extremely difficult one, it is important to recognise the early warning signs that the company could be facing trouble, these can be that:

• There is an increase in staff turnover
• You lose a key account.
• Orders are rising beyond the limits your business can manage with.
• Your company has increasing debt with no growth

However, when trying to stop your business from going down the plughole, there are steps you can take. Ensure that the company has regular meetings to discuss current events and keep detailed records of the discussions taking place. Make good use of accurate and up-to-date accounting information to assess the day-to-day cash outgoings. Ensure that any decisions made about continuing to trade are reviewed on a frequent basis, and if the director is having difficulty deciding whether or not continuing to trade is the sensible option, seek expert advice. By taking such steps to avoid closure, directors may also escape liability for wrongful trading as this proves that steps were taken to minimise losses after it became apparent that the company was going bankrupt.