Inability to break even indicates that a business is not making enough money to pay its bills. This may result in a variety of monetary issues, including the inability to pay for bills, salaries, and other obligations.
If a business keeps making losses, eventually it will run out of money and may be compelled to look for capital from outside sources like loans or investors.
However, if a business is unable to obtain new money, it can be compelled to make challenging choices like laying off employees or decreasing expenses in order to survive.
If the company is unable to turn things around and continue to run at a loss, they may have to consider other options such as liquidation or administration. Liquidation involves the winding up of a company’s affairs and the distribution of its assets to creditors. Administration, on the other hand, is a process where a company is placed under the control of an administrator, who is appointed to manage the company’s affairs and try to rescue the business.
Both processes have different implications for the company, its shareholders, and its creditors, and the decision of which one to pursue will depend on the specific circumstances of the case.
What does it mean for your company if it can’t break even?
If you company can’t break even it means there is an indication that a business is not making money to pay its bills. This may result in a variety of monetary issues, including the inability to pay for bills, salaries, and other obligations. If a business keeps making losses, eventually it will run out of money and may be compelled to look for capital from outside sources like loans or investors. However, if a business is unable to obtain new money, it can be compelled to make challenging choices like laying off employees or decreasing expenses in order to survive.
A company’s inability to break even may be a symptom of more serious problems, such as a lack of interest in its goods or services, subpar management, or unsuccessful marketing tactics. To avoid future financial loss, it is essential for the business to identify the problem’s underlying causes and develop a strategy to deal with them. Other options, such as liquidation or administration, may need to be considered if the business is unable to turn things around and continues to operate at a loss.
Additional funding
When times are tough, additional funding can be a lifeline for businesses looking to stay afloat. Although the company may not currently be performing at its peak level, obtaining vital funding to aid in business continuity is still possible. Additional funds can provide the necessary resources and stability needed in order to preserve operations and ensure success long-term. An approach that takes into account current financial challenges with an emphasis on investment for future growth will provide a strong foundation for continued progress over time.
Additional funding can be extremely beneficial to businesses, especially as it can help them expand, increase their workforce and grow. Depending on the type of business, there may be a range of alternative finance options to consider. One example is the merchant cash advance, which has been shown to drastically improve business performance for retailers by enabling them to restock efficiently and reduce outgoings. Ultimately, these extra funds could prove invaluable when it comes to keeping your business running smoothly and achieving success in the long term.
Restructuring debts
Debt restructuring can either be formal or informal. It generally entails changing the terms of credit or lending, so as to make repayment more manageable for the company and thus decrease the burden on cash flow.
You can talk to each of your creditors separately to lower your monthly payments, or you can use the official method called a Company Voluntary Arrangement (CVA) which makes the agreement legally binding.
A CVA usually lasts for a period of 2-5 years and can be a powerful tool in helping viable businesses with temporary financial issues to weather the storm and return to profitability.
Company administration
Placing the company into administration may be a smart move if you’re under intense pressure from creditors. It offers an eight-week moratorium period, during which a strategy for the company’s future can be developed, protecting the corporation from legal action.
It might be conceivable to sell the company out of administration, or at least some of it, or perhaps engage into the aforementioned Company Voluntary Arrangement. However, corporate liquidation can be the only choice if the situation is so dire that the business can no longer function.
Creditors’ Voluntary Liquidation (CVL)
We can assist you in voluntarily putting your firm into liquidation if the financial situation of the company deteriorates to the extent where it needs to be closed down. This closes down the business in a lawful manner and safeguards the interests of your creditors, which is a legal requirement for limited company directors.
When a corporation is put into liquidation, qualifying directors may also be entitled for redundancy. If you have worked for the company as an employee for two years or more, you might be eligible to file a claim for statutory redundancy.
When your business can’t make a profit and there’s no hope of improvement, CVL enables you to fulfil your legal obligations as a director. Any debts that cannot be paid back through this process are written off, and creditors are paid back from the profits of asset sales.
Please get in touch with our partner-led team for further details on creditors’ voluntary liquidation, director redundancy, and other relevant remedies if your business can’t break even. We have many locations across the nation and provide free, same-day consultations.
Conclusion
Understanding the break-even point of a business is crucial for assessing its financial health. The break-even point is the point at which a company’s revenues equal its expenses. At this point, the company is not making a profit, but it is also not incurring a loss. To calculate the break-even point, a business owner must determine their fixed and variable costs, as well as their unit price and sales volume.
By understanding the break-even point, a business owner can identify when their business is operating at a loss and take steps to address the issue. For instance, they can adjust prices, reduce costs or increase sales. Additionally, monitoring the break-even point regularly can help a business owner identify trends in their company’s financial health over time and make adjustments accordingly.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.