11 Reasons Behind Company Liquidation

Oct 2019

Incorporating the business and making it successful takes blood and sweat of the management. From the very initial start, a company faces several hurdles and finally makes its stand in today’s competitive market. However, acquiring the final customers is not the ultimate target. To run a company smoothly, several aspects are to be considered, and plans are to be implemented accordingly, which will contribute towards the end goal of organizational success. Many at times, the business owners fail to maintain absolute essentials, which ultimately leads to company closure. If you stand as the owner of a business, you need to take care that your business doesn’t follow the same path. This guide contains eleven reasons which are considered to be the core bases of company liquidation. Let’s have a look at them.

1.Company Records are Not Properly Maintained

The business records stand as a confidential document that involves numerous information ranging from the profits earned to losses beard by the company. Managing or haphazardly keeping the business records turns out to unwanted burden, and loss of data. This turns out to be one of the core reasons of company liquidation.

Proper management of business records both in a hard and soft copy clears half of the company’s issues. Reports generated at any point of time needs to be well-maintained for future reference. Usage of accounting software to manage the company records on a digital platform turns out to be more comfortable.

2.Failure to Update Business Transactions on Time

When it comes to business, the business transactions are to be recorded at any cost. If a company fails to maintain the operations at real-time, or postpone it for a later date, there exists a high probability of the information not getting recorded. Any business, who continues to do so, fails to tally the balance sheet at the end of the year, which ultimately infuses a question in the minds of the company stakeholders as well.

Well-maintained accounting and bookkeeping records serve to be a boon for any business. Maintaining them in-house turns out to be valid for a shorter duration. On 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 provokes the liquidation process is that the company fails to maintain the accounting records as it is supposed to be kept. As stated above, they are meant to be handled with care and in a professional manner. Having an accounting expert by your side eases out the process to a great extent, and can help you to understand the financial scenario of your business. In case if any loophole exists, an experienced accountant will be able to detect it at the early stage.

4.Audit Process is Not Considered to be Important

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

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 tech and have knowledge of the uses of accounting software. Applying the tech to your business not only helps you to grow but also enables you to sustain in this competitive market. To know more about the core reasons as to why you should use accounting software.

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 on the expense made, 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 o 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 real assets of a company without which your company can’t perform. To boost their morale, and enhance their belongingness, it is vital that you maintain a proper payroll management system which holds the complete dataset of payment details for employees.

Holding a proper payroll system helps you to understand the fixed cost that 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 so that the internal proceedings of the company 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 in a better way is that you should have a financial budget, which 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 the finance track very quickly, which will lead to the decision of company liquidation.

10.Impractical Business Decisions

At every step of the business, many decisions are to be taken at every point. While doing so, you need to make sure that the business decisions are based on practical implementations and shouldn’t be taken 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 take care of a professional expert who can guide you accordingly. Many at times, business owners think that hiring a professional turn out to be expensive, and so they never take the initiative of dealing with one. The smart business owners do go one step ahead, and seek the help of experts, being aware of the fact that the insights provided by an expert can bring out multiple ways for your business.

In a nutshell, you are now well-aware about 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 analyzed 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.