No one likes dealing with business debts, even at the best of times. When a company is unable to pay its debts, or earn enough to cover them, it’s insolvent. If the worst happens; you discover your company is in the red, and your creditors are demanding payment, it can be tempting to take out the corporate axe and start cutting staff, benefits and even essentials to save money and keep the business operating. While some cutbacks may be required, you shouldn’t go too mad when reducing your spending. Cutting back too many resources, so your business is working with a ‘skeleton crew’ can be a red flag to creditors and clients, that things aren’t going well. Consequently, they’re less likely to want to continue business with you. If you do find cutbacks are needed, we’d advise against excessive reductions in the following departments.
Human Resources
Human Resources is the buffer between the directors and the rest of the workforce, and once employees learn the company they work for is insolvent, they’re going to have a lot of questions. It would help if you kept them as well-informed as possible, so they can effectively manage all the extra enquiries, and any additional duties they’ll need to perform as a result. They should know what kind of insolvency procedure the company is undergoing, as well as the contact details of the insolvency practitioner appointed in case employees start asking more specific, complex questions. Cutting vital staff in a hurry to save money would be ill-advised. Even if you have to lay employees off as part of the rescue plan, HR may need to keep in touch with them in case any issues arise with pay, holiday entitlement or redundancy pay.
Finance
It can be easy to blame your finance department for lack of cash. That said, you should remember that one department is seldom the sole cause of financial trouble, and you’ll need to keep enough financial staff to manage the remaining operations. Cutting back on your finance department at a time where your finances are already in a delicate state can easily lead to further trouble. Late payroll and deferred invoices could occur, which leads to even more issues with unhappy staff, and soured relationships with clients and suppliers.
Marketing
In today’s social media-dominated world, marketing is more of a necessity than ever before. Prospective clients will often look at a company’s social media and put some weight on their activity when deciding whether to work with them. A lack of activity or a ‘dead page’ can indicate a lack of focus on marketing, or that the company may not be operating anymore, deterring customers and potentially driving them to competitors. Whether your marketing department needs scaling back will depend on the scale of their output and the relative cost. Marketing is often seen as a luxury, rather than an essential service to attract new customers and keep in touch with existing ones. You may have to scale back your investment and drop a few campaigns. However, it would be ill-advised to suspend marketing altogether. Doing so can give a sense of foreboding, as well as a false impression that you’re closing.
Conclusion
Although it may be tempting to drastically cut costs if your company is insolvent, you should think about the departments you’ll need to preserve. While getting rid of staff might save cash in the short term, the running of the business will suffer through an already difficult time. It would be best if you preserved your human resources department to keep communication fluid within the company. Keep your finance department operating efficiently to ensure any payment matters to the insolvency practitioner are dealt with immediately. Finally, while you may have to reconsider how you approach marketing, you should maintain a presence on social media and keep communication open with customers.
