Tips on avoiding bankruptcy

According to new figures released by the Department of Trade and Industry, company liquidations fell 0.9% in the last quarter of 2004 compared to the previous quarter.

The DTI said 2,938 businesses were declared insolvent between October and December, down 11.1% on the same period last year. The number of voluntary company insolvencies also fell in the fourth quarter, by 2% on the previous quarter and by 17% on the same period in 2003.

Amendments to the Enterprise Act in 2002 have given companies more options when faced with administration and have helped some of those companies at risk actually avoid liquidation. The amended act also allows entrepreneurs to start a new business after 12 months as opposed to the three years previously required after a company’s insolvency.

How can you avoid administration?

• Improve your cash flow. A factoring or invoice discounting service allows you to borrow money against your unpaid invoices, freeing up this capital to be used elsewhere.
• Talk to your bank. Make an appointment with your bank or building society and discuss any lending facilities you have with them. Many banks now have dedicated business advisors available so get help.
• Negotiate with your creditors. Any creditors that are owed more than £750 can ask a court to wind up your business. It is important to answer all calls and letters from your creditors and deal with them quickly. Remember, your creditors are not out to get you. Explain the situation and try to come to a reasonable agreement.
• Reduce overheads. Depending on what business you’re in, this can either be a quick, simple solution (like reducing production or cutting back on research costs) or could take longer (such as moving your office to your home or making staff redundant).
• Most of all do not just ignore it and hope the problem will go away. It won’t.

While company liquidations fell in the last quarter of 2004, individual bankruptcies were up 8% on the previous quarter and 35% on the same time last year.