How new firms can avoid insolvency

The latest figures from the Insolvency Service show that corporate insolvency is at the highest level since 2013, while separate research suggests that young businesses, meaning those formed after 2014, are more likely to have financial problems.

These were often through no fault of the firm’s own and often caused through late payment affecting cashflow or customers themselves going out of business, so budgeted payments were not received.

Unfortunately, 60 per cent of new businesses are likely to go under within three years of formation, yet if the failure rate was improved by just 10 per cent, it would be worth almost £20 billion to the economy.

Fortunately, there are several ways for new businesses, in particular, to avoid going under in the first five years.

One of the basic rules is to have a clear cash flow forecast that covers as many eventualities as possible, such as customers failing to pay on time.

The mantra ‘cash is king’ should be at the top of every business plan but before then, entrepreneurs should choose an appropriate business structure and make sure what they pick the one that offers them the most protection should the worst happen.

However, while it is important to ensure there is enough cash to weather any financial storms, there is a fine line between having enough and borrowing too much, particularly in a fluctuating economy.

Entrepreneurs should also make sure that their bases are covered professionally, as independent business advisers have a wealth of experience they can pass on to those new to the business world.

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