The break-even point in business refers to the point at which revenue and expenses are equal, resulting in neither a profit nor a loss. It serves as a valuable tool in determining the necessary sales volume and pricing strategy to cover costs.
If a company is unable to reach its break-even point, it may experience financial difficulties that can negatively impact the business. To avoid this, it is crucial to take proactive measures to enhance the company’s performance. This may involve adjusting unit prices, increasing sales levels, or finding ways to boost profitability. By understanding and addressing the factors that influence the break-even point, you can help ensure the success and stability of your business.
Consequences of Not Reaching the Break-Even Point for Your Company
Failing to reach the break-even point in business can result in a build-up of debt, which can eventually lead to insolvency and the cessation of operations. It is imperative to take action before reaching this stage by seeking advice from a licensed insolvency practitioner.
Early intervention can provide a clearer understanding of the available options and increase the chances of finding a viable solution. Before things escalate, it is advisable to seek professional support to fully assess the situation and determine the best course of action. It is important to consider all options and make informed decisions to secure the future of your business.
If a business is facing difficulties, obtaining funding can be crucial in ensuring its continuity. Alternative finance options, such as factoring and invoice discounting or asset-based lending, offer flexibility and quicker access to funding compared to traditional bank lending.
The type of business you have will determine the available alternative finance options. For instance, retailers may benefit from merchant cash advances. InsolvencySupport.co.uk has a network of alternative lenders throughout the UK and can connect you with appropriate financiers. With the right support, it is possible to overcome financial obstacles and improve the performance of your business.
Debt restructuring can be either formal or informal and involves modifying credit or lending terms to make repayments more manageable and alleviate cash flow pressure.
One option for debt restructuring is to negotiate directly with creditors to reduce monthly payments. Another option is to use a legally binding procedure called a Company Voluntary Arrangement (CVA). This typically lasts for a period of two to five years and can be a useful tool for supporting businesses that are facing temporary financial challenges. The goal of a CVA is to enable the business to continue operations, overcome financial difficulties, and eventually return to profitability.
In the case of severe creditor pressure, placing the company into administration can be a viable solution. This process provides a temporary eight-week moratorium period during which time a plan for the business’s future can be devised.
During administration, there may be opportunities to sell the business or certain assets, or to enter into a Company Voluntary Arrangement. In the event that the business is unable to continue operations, company liquidation may be the only remaining option. Administration serves as a protective measure that can provide breathing room and a chance to explore potential solutions.
Creditors’ Voluntary Liquidation (CVL)
In the event that the company’s financial situation deteriorates to the point of liquidation, our team can assist with a voluntary placement into liquidation. This process protects the interests of creditors, which is a legal responsibility for limited company directors, and ensures that the business is closed down in an orderly manner.
Eligible directors may be entitled to redundancy compensation when their company is liquidated. To be eligible, you must have worked for the company as an employee for at least two years.
Creditors’ Voluntary Liquidation (CVL) provides a way for directors to fulfil their legal obligations when the company can no longer break even and there is no possibility of improvement. In this process, creditors are repaid from the sale of assets, and any remaining debts that cannot be repaid are cancelled.
For more information on CVL, director redundancy, and other potential measures for companies that are unable to break even, please reach out to our partner-led team. InsolvencySupport.co.uk offers free, same-day consultations and operates a nationwide network of offices.