Preventing business failure is not about reacting to problems at the last moment. It relies on creating strong foundations, monitoring key areas consistently, and taking deliberate action before risks develop into major issues. The following five actions offer a practical structure for long term success and resilience against insolvency and liquidation.
What is Liquidation?
Liquidation is the formal process of closing a company when it is no longer able to pay its debts. It involves selling the company’s assets to repay creditors, after which the business is legally dissolved. Insolvent liquidation can be voluntary, when directors or shareholders decide to close the company, or compulsory, when a court orders closure following unpaid debts. Understanding liquidation helps directors take early action to prevent financial difficulties escalating and gives them clarity on the legal and financial responsibilities involved.
1. Conduct regular business health checks
Routine health checks give directors a complete understanding of how the organisation is performing and whether any area is beginning to show signs of decline. This regular oversight prevents small issues from turning into organisational risks.
Health checks mean assessing your business internally. This should start with reviewing your financial performance against forecasts and identifying downward trends. However, trends like this should also be noted across several departments, including assessing customer feedback, evaluating staff capability and workload and monitoring your operational efficiency? Are you performing as well as you could do?
2. Improve decision making through reliable data
Data gives directors the ingredients needed to create a solid foundation for planning and action. When data quality is high, the business can make confident decisions and avoid the costly misjudgements that often lead to failure. However, it must be interpreted and used in the right kind of ways:
- Use up to date financial and operational reports for all significant decisions
- Introduce dashboards that present essential indicators clearly and consistently
- Ensure staff follow strict but simple rules for recording information
- Review data quality regularly to remove errors and outdated figures
- Encourage a culture where decisions and proposals are supported by evidence
- Maintain a central information source so teams do not use conflicting data
3. Ensure invoices are paid on time
Cash is kind in any business. It is essential that there is a healthy flow. It gives the business the stability required to operate without disruption. Ensuring that invoices are paid on time protects the organisation from unnecessary financial stress and improves long term planning.
By setting clear payment terms, using a reliable invoicing system that successfully flags late payments and chasing clients where necessary. Directors should be able to stay on top of their invoices and have a successful flow of cash into the business.
4. Continue to invest internally
Internal investment will ensure that a business won’t fall behind. As tempting as it is to plough money consistently into marketing, it’s return might not be as great as internal investment. Even small improvements can strengthen performance and maintain competitiveness.
By ensuring your staff are of the highest quality and continue to have the opportunity to develop, it means you have a workforce at full capacity. Likewise, by ensuring that you have the best internal communications channels and business processes, the business will have the best chance of success. As mentioned above, it’s important to regularly review these processes, test them and analyse the data.
5. Maintain operational discipline
Operational discipline ensures is key to helping business deliver consistent results even during challenging periods. When processes are followed well, performance becomes predictable and customer trust increases.
- Set clear standards for service, quality, and accuracy
- Monitor performance through checks, reviews, and feedback loops
- Assign ownership for critical processes so accountability is maintained
- Address performance issues early before they affect output or customer experience
- Review processes regularly to ensure they remain effective and relevant
- Encourage early reporting of concerns to create a culture of continuous improvement
Summary
Businesses’ need a lot of work to be successful, it doesn’t matter how big they are. To give yourself the best chance of success, and to avoid liquidation, these 5 key points will give directors a good starting point.