Insolvency is a situation where a Business declares itself unable to repay its debts. However, it is not a tragedy that happens overnight. Proper monitoring of your flow of cash warns you when your company is about to become insolvent. It also gives you enough time to avoid such a disaster.

Here are seven tips that will assist in your efforts to Avoid Insolvency.

Insolvency

1. Improve the flow of cash

This is an area most of the startups fail miserably. Do the following to improve the flow of cash to your business.

• Bill as soon as possible to ensure a constant flow of cash
• Accept only those orders that you can fulfill on time.
• Manage your inventory. You may devise a stock reduction plan for the purpose.
• Negotiate with your creditors. Request them to extend limits and deadline.

You can also seek advice from your accountant in this regard.

2. Keep a good reserve of capital

Make sure that you have easy access to cash in emergencies. Have people from whom you can borrow money if need arises.

3. Try selling your assets

Try selling your assets. This way, you will get more money. Let your creditors feel that you are keen to repay their debts. It will make them willing to negotiate their arrangements with you.

Working part-time also is another way you can earn more.

4. Monitor your expenses at regular intervals

Monitor your expenses. Reduce them wherever you can. If your business is on the edge of insolvency, you may go for redundancy. You can even hire part-timers to fulfill your business requirements.

5. Keep your expectations realistic

Keep a close watch on your flow of cash. Do an honest analysis. If yours is a seasonal business, check if your business can survive quiet times. If not, pause your business until you are able to find necessary funding.

6. Talk to your suppliers

If you owe money to any one of your suppliers, negotiate with them. Request for an option to pay as installments. Write to the revenue services and request more time to pay your tax and other dues. Make sure that you are able to justify your request.

7. Overhaul the administration

The advice may appear tough. But human beings are “creatures of habit.” Change happens when new faces come up.

Begin the attempt with an honest analysis that change is a must to improve. You may have to take difficult decisions. But improvement is never going to happen if there are no right people.

Being conscious of the consequence is the best way to avoid insolvency. The process affects your credit rating. And you will have a tough time borrowing even a small amount. Certain bank accounts may decide to close your personal and business account. In such an instance, you will have to start everything all over again. Small finance institutions may help you. But the process is going to cost you dearly.