IS LIQUIDATION THE ONLY WAY OUT? | WHY LIQUIDATION?

Is liquidation the only way out if your business is struggling financially? This is a viable option if there are no new contracts on the horizon and no possible way for you to save the business.

If it’s not working now and you’ve already tried everything else, what is the possibility that you will get the business back on track within the next six months or even a year? Is there anything you can do differently to change the outcome? Because if you can't, there's only one way out.

How can you be sure about this decision? Doesn’t it make more sense to communicate with a liquidation expert that will be in a position to evaluate your business debt and provide you with the relevant information? Should you opt to call a liquidation expert, you'll at least be able to make an informed decision.

A liquidation expert will typically assess your business's financial situation. Because then only will it be possible to ascertain if liquidation is really the only way out for you and why.

What do the statistics say?
Taking into consideration that South Africa has one of the highest business failure statistics in the world, it is no wonder that so many businesses are seeking professional guidance to get rid of business debt in a safe, legal way.

5/7 Businesses fail within the first year in SA
According to an article published by Business Tech, the statement is made that 5 out of 7 new businesses fail within the first year of being registered in South Africa.

One of the reasons for such a high statistic is business funding. Interest rates are extremely high for any kind of business loan, and repayment schedules are very steep and, in many instances, not sustainable. Especially for an SMME. Only 6% of new SMMEs report having received funding and support from the South African government.

Common Reasons for Liquidation in South Africa

1. The business is over-indebted and experiences cash-flow issues.
The business might experience cash flow problems. Even though the contracts are streaming in, they don’t receive payment. Or payment is delayed to such an extent that the business cannot perform its duties and responsibilities towards it service providers, employees, etc.

2. Market Decline and Increased Competition
A new competitor joined the industry with much better pricing. Their service and expertise might not be as good as yours, but the new competitor sweeps up all the contracts. You're stuck with high prices, a brilliant business and marketing plan but lose business to the new guy. Maybe you lost a large contract and cannot service your monthly obligations towards the business.

3. Failure to Comply with Regulations
South Africa has stringent business regulations, and failure to comply with tax, labour laws, and/or industry-specific requirements can result in hefty fines. In most instances new businesses find it tough to adhere to minimum salary requirements and bargaining council rules and regulations. This in itself creates a huge problem for SMMEs to get started, especially with no funding and aid from the South African Government.

4. Shareholder Disputes and Internal Conflicts
Disagreements among shareholders can make a company unmanageable. In cases where conflicts cannot be resolved, liquidation may be the best way to dissolve the business and distribute assets fairly. This tends to be a highly volatile situation and, in many instances, results in compulsory liquidation proceedings.

5. Failed Business Rescue Attempts
Business rescue is an alternative to liquidation, but when rescue efforts fail, liquidation becomes the next logical step. Many businesses attempt restructuring, but if financial recovery is not possible, liquidation is often the inevitable outcome. This happens more with SMMEs than with larger businesses, but no business is exempt from this possibility.

Voluntary vs. Compulsory Liquidation
Liquidation can be voluntary, where business owners proactively decide to close the company, or compulsory, where creditors force the process due to unpaid debts. Understanding the differences can help business owners navigate their options effectively.

Final Thoughts
Is liquidation the only way out? I would say it would be a wise decision to talk to a liquidation expert that can help you ascertain which process is going to be the best route to follow, especially if this is your only form of income.

Liquidation is not a sign of failure
Liquidation is a strategic business move to cut your losses and start over. Liquidation has increased by at least 49% since the pandemic and is still increasing annually for several reasons and not only the ones listed above.

Whether due to financial distress, market shifts, or legal challenges, business owners in South Africa do have a solution to their business debt. Any good businessperson will know when the time comes to throw in the towel, cut your losses, and start fresh, preferably with no business debt haunting you.

With CureDebt, you gain access to a full suite of business debt solutions. All under one roof. Our seasoned business debt experts offer guidance that is tailored to your company, ensuring directors and shareholders understand the financial impact of every step.

Our team is your trusted partner in debt relief and financial rehabilitation for both business and personal debt.

It is important to remember that debt solution processes are complex legal processes. Therefore, we recommend consulting with a qualified NCR-accredited debt solution expert before proceeding with any debt solution.

Why cure debt?
Cure Debt is the ultimate debt relief solution to your unique debt problem. With a proven track record, we are proud to say that we can help you become debt-free.