Personally funding your failing company

Should I put more of my own money into a failing company?  

In short, “No!” While the desire to invest in your company to rescue it is understandable, if your business is facing difficulties and requires additional funds, there’s a high likelihood that your investment might be absorbed, and you may not recover those funds. If your business is registered as a limited company, typically, as a director, you enjoy personal protection if things go awry. Your business is considered a distinct legal entity, and injecting personal funds means that, in the event of the company’s failure, you’ll be treated akin to any other investor or creditor, with minimal chances of recovering your money.

If your business is facing financial challenges, it’s improbable that the bank will offer new funds or extend your overdraft facility. It’s crucial to remember that if your business is technically insolvent—where your liabilities exceed your assets or you can’t meet your debts when they are due—continuing to trade and accumulate more debts may expose you, as a director, to personal liability for the company’s debts. Therefore, it’s prudent not to incur additional company debts. 

Initially, explore alternative avenues to generate cash promptly. Can you sell more stock or expedite payments from overdue customers? Consider offering early payment discounts to customers; while this might result in slightly reduced income, it can inject funds into your company more swiftly, which may be preferable to delayed payments spanning 30, 60, or 90 days, or the hassle of chasing payments later on.

 

Examine the reasons behind the business decline. Have your sales decreased, and do you understand the causes? Explore potential measures to boost sales, such as reducing prices or offering limited-time promotions. Identify areas for cost-cutting and savings. Review all your expenditures to identify areas where adjustments can be implemented. Consider relocating to more economical premises, renegotiating with suppliers for better prices, or finding alternative suppliers. While letting go of staff is a challenging decision, consider offering reduced hours until sales recover and the business regains a stronger footing.

If your company is reaching a stage where insolvency seems unavoidable, it’s crucial to promptly seek professional advice from a qualified insolvency practitioner. This is vital to safeguard yourself and prevent further deterioration of the situation by continuing to trade. As a director, you bear responsibilities towards your employees, shareholders, and creditors. Recognising when it’s time to cease trading is imperative, and seeking guidance from an insolvency practitioner can help navigate this challenging decision.

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Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.