11 Reasons Behind Company Liquidation

Incorporating the business and making it successful requires sweat and blood from the management of the company. From the very initial start, a company faces many hurdles and overcoming such problems allows the company to make its stand in the competitive market finally. However, acquiring the final customers is not the ultimate target of a company.

To run a company smoothly, several aspects are to be considered, and plans are to be implemented accordingly by the management, which will contribute towards the success of the organization. Many times the business owners fail to maintain absolute essential standards, which ultimately leads to company shutdown. If you are an owner of a business, you need to take care that your business doesn’t follow the same path to destruction.

This guide contains eleven (11) reasons which are considered to be the basics of company liquidation. Let’s have a look at them.

1. Company Records are Not Properly Maintained

The business records are the confidential documents of a business that comprises extensive information of the company ranging from the profits earned to losses borne. Managing or haphazardly keeping the business records can become an unwanted burden and can result in the loss of data for the company. This turns out to be one of the core reasons for company liquidation.

Proper management of business records (both as a hard and soft copy) clears half of the company’s issues. Reports generated at any point in time needs to be well-maintained for future reference. Usage of accounting software to manage the company records on a digital platform is slowly becoming a lucrative option for many.

2. Failure to Update Business Transactions on Time

When it comes to business, all the transactions should be recorded at any cost. If a company fails to maintain the record of the operations in real-time or postpone it for a later date, there exists a high probability that all the information of the company is not getting recorded. Any business, who is unable to tally the balance sheet at the end of the year ultimately infuse a question in the minds of the company stakeholders about the profitability of the company.

Well-maintained accounting and bookkeeping records serve to be a boon for any business. The maintenance of the records in-house can seem like a valid option for a shorter duration. From a long-term perspective, a professional accountant turns out to be the smart choice.

3. The Accounting Guidelines are not Properly Followed

Another reason that instigates the liquidation process in a company is that the company fails to maintain the company's accounting records according to the guidelines. As stated above, the records are meant to be handled with care and in a professional manner. Having an accounting expert by your side can ease the accounting and bookkeeping process to a great extent and help you understand your business's financial scenario. In case if any loophole exists, an experienced accountant will be able to detect it at the early stage and provide remedial measures.

4. Audit Process is Not Considered to be Important

Every business needs to undergo an audit process as conducting the internal audit. The external audit process helps the management understand the gap between the current position and the organizational goals. An auditor prepares an audit report by the end of the process, providing all the important information about the company. Necessary guidelines and suggestions are to be considered as the experts are well-versed with the future consequences. Negligence at this point for an extended period might result in the liquidation of the company.

5. Failure to Stay Updated with Technology

It is a well-known fact that now every industry uses multiple software to carry out their business activities. When it comes to accounting, you need to take care that your accountant is well-versed with technology and possesses a knowledge of this accounting software. Applying the tech to your business helps you grow and enables your company to sustain itself in this competitive market.

6. Business Cash Flows are not Properly Traced

Cash flow deals with the complete set of monetary aspects of an organization. Maintaining proper cash flows helps you to get an idea of the expense made by the company, and also it helps you to remove the unwanted costs. Non-maintenance or negligence of preparing cash flow statements will not allow you to have proper knowledge on the utilization of company finance and will ultimately result in company liquidation.

7. Failure to Consider the VAT Return Filing

The UAE has implemented the VAT @ 5%, which needs to be borne by any business. You need to make sure that VAT Return Filing needs to be completed on time, or else you might suffer losses. Since it becomes difficult to consider every aspect, so it becomes a smart option to

8. Lack of Payroll Management

It is essential to understand that employees are the company's real assets, without which your company can’t be profitable. To boost their morale and enhance their feeling of belongingness, it is vital that the company maintains a proper payroll management system that holds the complete data of payment details for employees.

Having a proper payroll system helps you understand the fixed cost you have involved in maintaining your employees. Continuous hiring and no profit generation would lead to company loss. On the other hand, earning huge profits and not paying the staff on time would lead to low productivity. Being a business owner, you need to understand that proper systems are to be developed, making sure that the company's internal proceedings aren’t affected. Most of the business owners in Dubai look forward to outsourcing the payroll services, as that turns out to be economical, and the details are maintained professionally.

9. Failure to Maintain a Proper Financial Budget

Finance is regarded as the lifeblood of business, without which a company cannot perform. The first step in managing the company finances better is to have a financial budget that can be monthly, quarterly, half-yearly or yearly. Having a core budget will help you to utilize the available finance in the best possible way. Any business entity, who fails to prepare a financial budget, will lose track very quickly, which will lead to company liquidation.

10. Impractical Business Decisions

At every step of the business, the management has to make a number of decisions. While doing so, you need to make sure that the business decisions are based on practical implementations, and the management should not take such decision in a hurry. Decisions taken randomly without considering the overall aspects might lead the business entity towards failure and ultimately turns out to be impractical.

11. Lack of Expert’s Advice

As stated above, unwise decisions might turn your company’s profit into losses, so it becomes essential that you avail the services of a professional who can guide you. Many a time, business owners think that hiring a professional is an expensive affair, and so they never take the initiative of dealing with one. Smart business owners go one step ahead and seek experts' help, being aware that the insights provided by an expert can bring out multiple ways for your business.

In a nutshell, you are now well-aware of the reasons that turn out to be the core reasons behind company liquidation. To protect your company from reaching this far, you need to take the necessary steps as soon as possible. At this point, following the footsteps of highly experienced accountants and auditors in Dubai turns out to be beneficial for a business. The issues will be deeply understood and analysed by the accounting and auditing experts at JAXA Chartered Accountants, and tailored solutions will be provided accordingly. In case you hold any doubt or query, do contact us-we’d be glad to assist.