How to avoid insolvency in 2024-2025

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UK insolvency 2024

UK insolvencies soared to a 30-year high in 2023, and the trend is expected to continue into 2024. Here we look at some key ways to avoid insolvency, including accurate cash flow forecasting, invoice finance and asset refinancing.

How to avoid insolvency in 2024-2025

In 2023, UK corporate insolvencies soared to a 30-year high, with over 25,000 companies failing – the highest number since 1993 and 14% higher than 2022.

Forecasts predict this trend continuing in 2024, with potentially over 8,000 insolvencies per quarter. Construction, wholesale/retail, and auto repair were hardest hit in 2023, with hospitality, leisure, transport, and storage likely to join them in 2024.

Some notable insolvencies in recent times have included those of high-street stalwart Wilko and the beloved cosmetics retailer, the Bodyshop, whose demise has been described by one industry watcher as “death by a thousand cuts”.

Myriad causes have been ascribed to this unsettling trend, including the long-term impact of Covid-19, inflation and interest rate rises, low consumer confidence, and skills and labour shortages.

The Centre for Economics and Business Research (Cebr) identifies the economic fallout from the Covid-19 shutdowns as the most significant contributor to the rise in insolvencies, saying “the companies going bust in 2024 and 2025 are largely ones that got into financial trouble in the Covid years and have never really escaped.”

Here are our top tips for businesses facing insolvency in 2024/2025

Cash flow visibility is crucial for predicting future bottlenecks, helping you to identify which months the company can expect a cash deficit and which months it can expect a cash surplus. Forecasts of this kind are particularly important if you are considering seeking investment or finance to paper over the shortfalls.

One option is to use free financial forecasting software online, or you can build your own cash flow forecast by tallying up your net outgoings and net income.

The earlier a business addresses cash flow challenges, the better. Early intervention will help you secure financing on more favourable terms, and it affords precious time to engage with stakeholders – shareholders, suppliers, and creditors alike – and explore options for restructuring.

Cash flow insolvency arises when essential obligations fall due but cannot be immediately met due to a lack of readily available cash. While the company may hold valuable investments or property, these assets might not be sufficiently liquid to bridge the short-term cash flow gap.

In the event of cash flow insolvency, B2B businesses who provide credit terms to their may wish to look at tightening their credit control procedures or providing incentives for early payment, such as discounts.

Invoice finance might also provide you with some breathing room, allowing you to collect a portion of their outstanding invoices upfront and providing immediate capital.

Equipment or property refinance is an option for businesses with significant capital tied up in high-value assets.

With equipment refinance, a company can sell its existing equipment to a financier, entering into a lease agreement that grants them uninterrupted use of the very same equipment, while unlocking a much-needed influx of capital.

Review your overhead cost base, eliminating unnecessary expenditures or renegotiating cost reductions with relevant parties (e.g. landlords, contractors or third-party agencies).

Navigating staff costs may require a more prudent approach with notice periods and potential redundancy payouts coming into play. A detailed cash flow forecast that factors in these costs is therefore essential to ensure a smooth and financially responsible downsizing process.

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