Corporate insolvency, or ‘business bankruptcy’ as it is colloquially referred to, can be an enormously challenging process – but what happens afterwards?
New research from SimplyBusiness and YouGov has found that many of the UK’s small firms are closer to the insolvency brink than they may think. Faced with an unforeseen issue that forced them to cease trading temporarily, more than half of small businesses could survive for just two weeks on their existing cash reserves, while one in five have no cash reserves at all. Insolvency is a major risk for the country’s SMEs, and it is one with which many will have to contend.
The UK has a very different outlook on business failure to its counterparts across the Atlantic. In the States, there is almost a presumption that business owners will endure a series of failures before they enjoy a success, while on this side of the pond insolvency can often be seen as a career’s death knell.
In fact, though, a business failure can often provide an entrepreneur with an opportunity to regroup, to reassess their position, and to go on to build something bigger and better.
So, if you want to start a new business after a corporate insolvency, what are the main factors you need to consider?
First, it is vitally important to understand that there are severe restrictions on your business activities if you have been declared personally bankrupt. Undischarged bankrupts are not allowed to become a company director and, while they may operate as a sole trader, they must either trade under their own name or the name by which they traded when they were declared bankrupt. These are important legal restrictions, and you must abide by them. Read more about running a business while bankrupt.
It might seem counterintuitive, but a business failure can be an opportunity. It gives you the chance to take stock of your progress, and to identify what went right and what went wrong.
If you want to rebuild a business after bankruptcy or insolvency, you need to make sure that you learnt he lessons of the past. Why did your previous business fail? Were you saddled with unmanageable debt? Did you suffer from late payment? Did an over-aggressive expansion plan prove impossible? You need to take some time to conduct a proper post-mortem of your last venture in order to ensure that this one has the best possible chance of success.
Even if your previous business failed for reasons seemingly entirely beyond your control, if you choose to operate in a similar field this time around you are likely to find that rebuilding trust amongst clients and suppliers proves challenging. However, this must be a key priority if you are to regain a position as a viable player in your chosen industry.
You might choose to begin by trying to identify the other businesses that are likely to have been immediately or most directly impacted by you having ceased to trade. A single business failure can have dramatic impacts throughout a supply chain, and those chains can be very complex. By considering who has taken a hit, and by taking a personal, face-to-face approach to rebuilding trust with those businesses, you can try to mitigate any potential damage to your reputation while rebuilding important client relationships and strategic partnerships.
However, you should remember that there is no obligation for you to continue in the same industry in which you previously operated. Indeed, many entrepreneurs take this opportunity to reassess what they want from their career, and to retrain their focus elsewhere.
It may well be that you have expertise and experience in another field, or that you want to develop new skills in other areas. You should think carefully about this option, remembering that you may not enjoy an opportunity to change the course of your career again for some time, if at all.