Apart from profitability and growth, entrepreneurs also strive to keep the business solvent. Failure to do so can after all lead to the company’s demise so it’s only common sense to always keep it in check. The thing is such task isn’t exactly a walk in the park. It’s challenging if not more and will necessitate a lot of work. So how is it done? We’ve asked the experts over at AABRS to share their ideas on the subject.
First things first, what does being solvent mean? In its simplest explanation, it pertains to an entity’s ability to fulfill its obligations as they mature for at least within a twelve month period. It is characterized by a healthy level of cash inflow versus outflow and a ration of more assets over liabilities.
Such status is necessary to keep the business running because insolvency can lead to liquidation or a winding up petition from creditors. As mentioned, it takes work to maintain it and it’s not something that can be done overnight. That said here are some tips on how to keep the business solvent. Read up.
- Keep records in check. – One way to easily detect a looming solvency problem is by taking a look at one’s financials. Of course, if records and accounting is faulty then it would cease to serve such purpose. This makes it important to ensure that such arm of the organization functions effectively, efficiently and timely.
- Perform regular audits. – Examination of said records must also be done on a regular basis to be able to see and detect any threats as well as to pinpoint areas for improvement. Also, this should allow for risks to be detected early on so they can be stopped in their tracks.
- Watch your receivables. – Make sure that cash is not locked up for long in their invoices and that receivables are watched to ensure that they are collectible. This also makes it important for the company to screen out customers before extending credit to them.
- Manage credit wisely. – To avoid liabilities from growing beyond proportion, proper credit management is required. This entails the screening of all liabilities to be taken, the proper scheduling of payments and all other related tasks. Doing so will help prevent the company from taking on more credit than it is capable of says AABRS and thus in a way help keep solvency.