Directors, if you do the same things again, you risk getting the same result – another liquidation!

“What am I going to do for work if I have to liquidate my company?”*

I meet many directors every year, especially those of small companies, where we have acted as liquidators, who then tell me they want to set up a new business and start again. They say they don’t know anything different, want to get trading again after the liquidation and ask me for some advice. My response is usually to advise them that if they do the same things again, they’ll probably get the same result – another liquidation – and that I could well be hearing from them again in 12 months’ time.

Starting a new business venture can be both exciting and daunting, especially if your previous company had to be liquidated. So, what needs to change? In this article I focus on some key practical pieces of advice I give to directors who are keen to start again after liquidation and emphasise, in particular, the importance of not using the same company name.

(*Article by Elaine Wilkins, director, Antony Batty & Company, Bournemouth)

1. Seek professional advice and support

Surround yourself with a team of experienced professionals who can provide valuable insights and advice. This includes:

– Accountants to help with financial planning and tax compliance.

We often find directors of small businesses use on-line accountants, believing that will save them money. In our experience that can be a false economy and we recommend an accountant who can provide regular face to face catch ups, where figures are reviewed, cash flow is checked and any warning signs of financial distress are spotted early and reacted to, reducing the threat of heading towards insolvency and liquidation.

– Legal advisors to ensure you comply with regulations and avoid legal pitfalls.

– Business mentors or advisors who can offer strategic guidance based on their own experiences.

2. Reflect on past mistakes and learn from them

The first step in ensuring a different outcome for your new company is to reflect on what went wrong with the previous one. Conduct a thorough analysis of the factors that contributed to the insolvency. Was it poor financial management, lack of market research, inadequate cash flow, or external economic factors? Understanding these issues will help you develop strategies to mitigate similar risks in the future and avoid liquidation.

In particular:

• Always save to pay your tax. Open a separate bank account and always save a proportion of each invoice so you have the money to pay your tax when it falls due.
• We often find that small businesses are slow getting their invoices out. Take time to ensure invoices are sent and that your quotes are allowing room for a profit and ensure you have a caveat for any material price increases.
• Implement effective credit control procedures to manage debtors and creditors.

3. Develop a robust business plan

If you did not have a business plan first time around, make sure you have one second time around. A well-thought-out business plan is the foundation of any successful company. Your business plan should include:

– A clear vision and mission statement.

– Detailed market research and analysis.

– Comprehensive financial projections, including profit and loss forecasts, cash flow statements, and break-even analysis.

– A marketing strategy that outlines how you will attract and retain customers.

– Contingency plans for potential challenges and setbacks.

Also, look at where you can find efficiencies. Do you need as many staff? Do you need a premises? These are the questions that need to be asked.

4. Monitor and adapt to market changes

The business landscape is constantly evolving, and it is essential to stay informed about market trends and changes in your industry. Regularly review your business model and be prepared to adapt to new opportunities and challenges. This may involve diversifying your product or service offerings, exploring new markets, or leveraging new technologies.

5. Avoid using the same company name

Using the same company name for your new venture after liquidation can lead to confusion and potential legal issues – see section 216 of the Insolvency Act 1986. It may also carry negative connotations associated with the previous liquidation. Choose a new name that reflects the fresh start and positive direction of your new company. Ensure that the name is unique, memorable, and aligns with your brand identity.

6. Ask yourself if starting again is the right thing

I know it is scary but finally think about the advantages of not running your own company but becoming an employee for at least a while. Having gone through one liquidation, which can be tiring and draining, sometimes it is best to just step back and take stock for a while.

It does not mean in a year or so you couldn’t set up another company, possibly when the economic climate changes in your industry, for example.

Starting a new company after facing insolvency and liquidation is a significant challenge, but it’s also an opportunity for a fresh start. By learning from past mistakes and doing things differently, you reduce the risk of seeing us again in 12 months or so down the line.

(See a version of this post in the Bournemouth Echo)