There are many common reasons for companies becoming insolvent; with the main ones including loss of crucial employees, poor cashflow, bad debt, reduced customer retention and lack of study against your competitors. It is crucial for companies to invest time into some competitor research and market analysis.
Below are 5 useful tips to lessen the chances of your business becoming insolvent.
Keep happy staff
As we’ve all probably noticed, we’re more productive when we’re happy. However, many of us can still underestimate the importance of keeping loyal and satisfied employees. Employing new staff will drain your funds due to training and recruiting costs, therefore it will always be beneficial to you to keep your experienced staff; they know your business and understand the market you operate in. You will find that happier staff are genuinely more passionate about working to the best of their ability and promoting your company more honestly and enthusiastically than unhappy staff. It’s also important to reward hard work in order for employees to feel appreciated and recognised for their talents as individuals. According to Forbes Magazine, creating a content and amicable workplace is a good start, as their main reasons for leaving were as follows;
1) They don’t like their boss (31%),
2) A lack of empowerment (31%),
3) Internal politics (35%) and
4) Lack of recognition (43%).
So, you could consider these points as a guideline of what to avoid. It may also be a good idea to tailor it to your own workplace. Get some anonymous feedback forms or surveys filled in on what makes your employees happy and unhappy and work outwards from there; if they are anonymous they are more likely to reveal a true picture.
Control bad debt
It’s a simple fact that for many business owners, loans are often an essential starting point. We all need to borrow from time to time, especially in the beginning stages of our investments. It’s easy to be tempted to borrow more money than you need and justify it as the route to your success, but it’s always important to be cautious when you open a business, as inevitably your monthly debts will fluctuate. Debt turns bad when you can’t afford to pay it back, so try to put in place a plan to begin to pay it off. If you fail to pay back debt, it will reflect on your company credit report and can affect future investments. As your revenue increases, you can afford to borrow a little more if you know you will have no trouble paying it back, but don’t just rely on business you hope to get to repay your bills; make sure you have a solid repayment plan in place. It’s a good idea to keep cash in the bank for the months where it’s harder to pay off your loan payments; you’ll then fare better in the event that your cashflow suffers a big blow.
Focus on customer retention
Sometimes it can be easy in any industry to develop a tunnel-vision-type reliance on a small group of big fish customers to generate business. Don’t put all your eggs in one basket; it can be problematic in a world where competitors can pop out of nowhere. Its common knowledge in business that you can’t win them all; and you should prepare to lose some deals and customers to competitors. If you keep a close eye on competitors to make sure your company is offering more than them, this should help with retaining your customers. Any customer can be just as fickle in their loyalty, and some customers need more convincing than others. Making your customers and customer service your main priority will massively reassure customers that they are still important to you even after they have parted with their money. Appealing to more customers increases the probability of stable revenue, and lessens the hit that your cashflow would take if you lost one important customer.
Ensure that you’re paid
Ideally, your primary aim as a business is to be paid. This significantly increases your chances of being successful. When doing new business and monitoring current customers, you should always have a credit checking process in place. A company’s credit report can provide you with key financials, up to date payment behaviour and any debt that company owes, so you can gage when you are likely to be paid, and how consistent the company will be at paying you. Check new customer’s credit reports before you go into business with them and continue to monitor customers when you have signed a contract. 6 months after signing a deal; a company’s circumstances could change, so make sure they are still creditworthy for as long as you are dealing with them.
There are a number of methods to help you encourage payment from customers. Firstly, efficient invoices quicken the process for payment; make sure they are accurate and timely. You should create routine deadlines to complete them and send them out, this would support your structure and organise your payments in a timely manner. Increased payment channels can limit the inevitable excuses that you may come across from customers who cannot or won’t pay you. This should also improve accessibility for your customers to pay quicker. Similarly, you can lessen your workload by promoting standing orders, it will lessen the time it takes for them to pay, but also maintain organisation and regularity. Banks should also provide further reminders for you if a standing order bounces. Another good idea is to offer incentives for paying early, who doesn’t like a bargain discount on their payment?
Pay your bills on time
Whilst cashflow is heavily affected by sales, sometimes your own expenses can be put on the back burner. Things like taxes, employee payroll, property rent, etc. can amount to a fair sum at the end of the month if you don’t have a lot of leeway with your finances after everything else has been paid. The key to success as always is preparation and saving although this can be sometimes forgotten. It is vital to try to prepare for anything in order to keep your business running. Prioritising your payments is also a good idea. For example, if you fall behind on paying the rent for your office, that will be a big blow to your business as you could be evicted, meaning this should be one of your main priorities every month.
How we can help you
Creditsafe offer a range of business solutions, such as international credit reports, marketing data, monitoring devices and debt solutions. When you’re running a business, there are so many things to worry about without having to make sure your targeting the right people, those people are creditworthy and they will pay you. By employing a company such as ours, we take care of that for you. Protecting your business is what we do, and we now have over 85,000 customers worldwide.
Have a free trial of our website and see how we can help you avoid insolvency.