REDUCE THE RISK OF INSOLVENCY

Introduction:

Reduce the risk of insolvency:

A business is insolvent if it doesn't have sufficient assets to cover its debts, or it is unable to pay its debts as and when they are due.If you monitor your business' actual performance against your budget and the cash flow forecast regularly, this will give you an early warning of potential problems. You can then take action to avoid insolvency.

This guide provides information on how to reduce the risk of insolvency by suggesting actions to take and sources of advice. It also describes possible outcomes of insolvency for different types of business.

Implication for different business structures:

Every business needs a ‘structure’, which really means the type of legal structure the business operates under so everyone knows what type of business you are. There are three main types.

• If you roll out of bed and decide suddenly ‘I want to be my own boss’ then you automatically become a ‘sole trader’. You don’t have to do anything else.
• If you want to partner up with someone else then you could form a ‘partnership’, ideally with an agreement but not always.
• If you want to separate the business from your personal life, then you may want to form a company, where you need to register and go through a process before this can happen. 140- MANISHA
  

DISCUSSION

The consequences of different businesses.

1. Cash Flow- Cash flow is a major challenge for many small companies – even when things appear to be going well. Cash flow problems can lead to insolvency. To keep cash flowing consider the following points-

· Invoices promptly-also try to negotiate regular payments from long term contractors.

· Plan stock reduction- if cash flow problems are serious; cut the amount of cash tied up in stock.

· Factoring – sell outstanding invoices to a third party, known as factors. Factors pay some of the debt off in advance of collection.

2. Talk to your creditors, negotiate and compromise

DO not ignore creditors- ever! If they are owed more than 750 euro any creditor or group of creditors can ask a court to wind up your business. Answer letters and phone calls promptly and discuss problems with payments.

75-MANISH GARG

.

Conclusion:

Provisions in the Guideline are probably insufficient to prevent liquidity and credit risks arising from interoperability.The best business structures are those that are as flexible as possible. A new business that is likely to make losses in the first few years could start as a partnership or sole-trader to make the best use of those losses. There may be commercial pressures to operate as a limited company in certain sectors. It is important to have a firm understanding of the various business types and government regulations prior to starting a business. For more advice on selecting a business organization, you should consult with a lawyer.

140-MANISHA