Photo by César Couto on Unsplash
Sometimes when it comes to business, there are times you need to make those tough decisions. It is important that you know when the right time to walk away from the business is. You might need to close the doors, or perhaps it is time to consider liquidation.
Both of those things sound scary, but they are the best ways to cut losses when they happen. When it comes to liquidation, there are two options that you need to be aware of and that is CVL which is creditors’ voluntary liquidation, and compulsory liquidation.
With compulsory liquidation, a creditor has forced you into liquidation; with a CVL, the process is usually started by directors. You can hire a professional business that specializes in your company’s type of business, for example, automotive liquidators or restaurant liquidators.
Here is how to know if you need to consider liquidation
Balance Sheet
One of the biggest and most obvious signs that you need to cinder closing the doors on your company is if you are failing the balance sheet test.
The balance sheet of a healthy company will have more assets than debts and liabilities. If you have a stack of claims against your company, and the amount is larger than your current assets – and this is a persistent state, then it is time to consider liquidation.
Cash flow
Every business has highs and lows, but if your lows in terms of cash flow seem to be never-ending, liquidation should be on the table.
When the debts are stacking up and you have more payment demands than the income coming in, your business is no longer viable.
Legal
After some time of missed payments and payment demands, your credits will most likely go through the courts to get their money back.
Why is liquidation a good idea?
While it might sound like a negative, liquidation is actually a great option that comes with many benefits and positives.
When you choose to liquidate your company, the first and most sought-after benefit is that you begin to minimize your debts. The Statement of Affairs is still a cost that you need to cover, but all following liquidation expenses will, however, be covered by the sale of firm assets. In most cases, this makes liquidation a more cost-effective alternative.
Your lease arrangements will be terminated when you liquidate your company, and you will no longer be liable for further payments. If you have arrears, these are able to be reclaimed, but this will be discussed with your liquidator.
All legal action that was taken against you will end, and if you have no personal liability, then you will not have legal action taken against you personally either by debtors.
And finally, if you have staff when you opt for liquidation, you can make sure that they are able to claim uncollected wages, holiday pay, and redundancy pay too.
When your business isn’t healthy, rather than put more cash into it, it is better to look at what your other options are.
If you aren’t ready to close your doors, then here are some ways to get some finance together to keep your business running: Best Ways To Finance Your Business – Innov8tiv.
