Taking action on insolvency

By: Fanny Marshall

Date: 9 December 2009

Almost a year to the day that Woolworths folded, the news broke that the bookshop chain Borders UK has also gone into administration.

Given the current economic climate, becoming insolvent - having debts that you are unable to pay - is a very real threat to many small-business owners. If you're struggling to keep on top of paying your creditors, just ignoring the situation and hoping it will go away is probably the worst thing you can do.

You can reduce the risk of insolvency by keeping good control of your cashflow (see the section on 'Keeping your cashflow healthy' on the Start Up Donut). Building a good relationship with your creditors, such as your bank, can mean that they will be more supportive if you do run into financial difficulties. Choosing an appropriate structure for your business can also offer you an element of protection; for example, trading as a limited company offers the most protection against personal bankruptcy. If your business is already in financial dire straits, a licensed insolvency practitioner can offer advice on the best course of action to take. Just blindly trading on in the hope that you will be able to turn the business round can prove very costly to you personally if it does not work, and you could actually make the situation worse.

Go to the Insolvency section on the Law Donut website for further information.

The Government's Insolvency Service website also offers advice on different aspects of bankruptcy, insolvency and compulsory liquidation.

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