Dealing with liquidation is tricky for all businesses, especially if you’re not making the decision to liquidate yourself. In this blog, we’re looking into the specific liquidation challenges for retail businesses.
Do you own a retail business that’s struggling financially? You’re not alone. Since the global pandemic, many retail businesses have struggled to get back on their feet and offer the same quality of service they did before. Additionally, business owners have had to deal with high inflation levels and other unprecedented challenges.
If your business is struggling, it might be labelled as insolvent. An insolvent company cannot afford to pay its debts when they fall due, or its liabilities are worth more than its assets. This is a significant challenge to deal with, but there are some steps you can take.
What should I do if my business becomes insolvent?
The most important thing to do if your business becomes insolvent is to stop trading as soon as possible. As a director, you have responsibilities that you must adhere to, which means that you should always act in the best interest of your creditors. By ceasing trading, you’re adhering to the responsibilities by minimising the losses of your creditors.
The next thing you should do is seek professional advice. A few different options are available depending on your financial situation and the future of your business. If you decide to close the company, then it’s likely that a Creditors’ Voluntary Liquidation will be used. To complete this, you will need to appoint a licensed insolvency practitioner.
Before you agree to work with an insolvency practitioner, you must ensure they have checked all aspects of your business, including whether or not you have an overdrawn director’s loan account. If you do, you may be liable for paying it back.
What are some common reasons why retail businesses need to liquidate?
As a business owner, it’s normal to feel like no one else has been through what you’re going through, but the truth is that so many people have. Businesses fail for many reasons, and most of the time it’s through no fault of the director. Here are some common reasons why liquidation might be necessary in the UK retail sector.
Economic issues
As a business owner, it’ll come as no surprise that the last few years have heavily impacted the economy. This can be extremely tricky for retail businesses, as consumers tend to purchase only essential items.
Additionally, consumers aren’t the only ones who are affected, as businesses experience high operational costs from their suppliers, leading to poor financial health.
Consumer spending changes
Consumer preferences naturally change every now and again, which means that retail businesses must stay ahead of trends and adapt their offerings accordingly. You have to continue assessing consumer behaviour in the retail sector.
High competition in the retail sector
There are so many retail businesses in the UK, and it’s inevitable that some will offer the same products. With this in mind, you must think of other strategies to set you apart and keep your customers coming to you.
Additionally, many retail businesses that still only have physical stores and not online shops may be at a disadvantage as online shopping continues to grow in popularity. This can lead to lost market share and cash flow issues.
Supply chains
We have so many directors come to us saying they’re out of pocket because they haven’t been paid by a client, and this can significantly impact your supply chain and the general operations of your business.
Common liquidation challenges for retail businesses
So, if you’ve decided to liquidate your business, here are some common challenges you may face.
Debt costs and business rates
As a business owner, you will likely spend money on business rents and more. You may also be paying off business loans. You should be very careful about paying off loans as there are instances where these are labelled as preferential payments.
Deciding on the best method of liquidation
We already mentioned that there are various methods of liquidation, and it’s very important that you choose the right one for you. A qualified professional can assess your situation and suggest the most appropriate option.
Options for insolvent retail firms may include a Creditors’ Voluntary Liquidation (CVL) or a Company Voluntary Arrangement (CVA).
Stock sales & inventory management
Some businesses decide to sell company assets to help make money. You should be very careful if you choose to do this. When selling assets, some directors sell them undervalue, which will land them in big trouble.
The right thing to do is sell them at market value. An independent valuation company should confirm this value, and you must keep proof of this. Your company accounts and cash flow will be assessed in liquidation.
It can be very tricky for retail sector businesses to deal with liquidation, but with professional advice, closing your retail business can definitely be easier.
Do you need support with your retail business liquidation? Contact our friendly team today and we’ll be more than happy to help.
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