Suspension of business activity - what is associated with it?
Maintaining financial liquidity is often not an easy task for a self-employed person. Running our own business makes us responsible for everything - acquiring customers, providing services, selling products, production (depending on the type of activity), debt collection and settling current liabilities, making decisions regarding possible investments or planning business development. So what to do if we do not cope with all obligations and we lose financial liquidity? Is business suspension a good solution? What other options do we have to save the business?
Suspension of business activity - what does it involve?
Suspension of business activity means that the entrepreneur cannot perform activities aimed at generating income. This means that a person who decides to suspend running a business is obliged to refrain from any sale of goods or services for that time. However, there are no contraindications to sell fixed assets or equipment during the suspension period.
An entrepreneur who has decided to suspend business activity may incur expenses aimed at maintaining or securing sources of income, i.e. resulting from contracts concluded before the date of suspension of the company, such as rent or telephone subscription bills. These types of expenses constitute a tax expense. While the company is suspended, depreciation write-offs should not be made, and then the depreciation is suspended.
The suspension of business activity does not release the entrepreneur from settling the obligations arising before the date of the suspension of the company, which means that taxes must be paid and obligations towards their contractors must be settled.
Art. 25 sec. 2 of the Act of March 6, 2018 - Entrepreneurs Law
"During the period of suspension of economic activity, the entrepreneur:
1) may perform all activities necessary to maintain or secure the source of income, including termination of previously concluded contracts;
2) may accept receivables and is obliged to settle liabilities that arose before the date of suspension of economic activity;
3) may sell its own fixed assets and equipment;
4) has the right or obligation to participate in court proceedings, tax and administrative proceedings related to the economic activity performed before the date of suspension of the economic activity;
5) performs all obligations prescribed by law;
6) may achieve financial income, also from activities carried out before the date of suspension of economic activities;
7) may be inspected on the terms provided for entrepreneurs engaged in economic activity;
8) may appoint or dismiss the succession manager referred to in the Act of 5 July 2018 on the succession management of an enterprise of a natural person and other facilities related to the succession of enterprises " The suspension of business activity also does not release the entrepreneur from keeping accounting records, i.e. recording transactions made in the KPiR.
It is not always possible to suspend business activity, it can only be done when there are no employees in the company. If we decide to suspend the company, it will be necessary to submit an update of the CEIDG-1 application, which we can do in person at the commune or city office or online without leaving home. We suspend our business activities for a period of at least 30 days, while the upper limit has been lifted, which means that the company may be suspended for an indefinite period.
Is the suspension of operations the only solution in the event of loss of financial liquidity?
It should be borne in mind that if we even decide to suspend our business for a while, returning to business may be very difficult, and sometimes even impossible. During the suspension of operations, we do not have the right to perform any activities aimed at obtaining income, and therefore we are forced to suspend the sale of goods or services. Our regular customers may find other suppliers during this time. Returning to running a business after its suspension is sometimes much more difficult than overcoming temporary financial difficulties that occur in almost every enterprise. Lack of financial resources to pay current liabilities is not yet a reason to suspend or liquidate a business. Before making such a decision, it is worth considering how we can raise money and improve the financial situation of our company.
When losing financial liquidity, it is crucial to take appropriate action as soon as possible. Otherwise, financial problems usually worsen, and the greater the liabilities, the more difficult it is to restore profitability in the company.
The most important thing we have to do when we realize that we have financial problems in our company is to make a detailed analysis of the current financial situation of the company and find the causes of the situation. A factual and rational assessment of our business activities is the key to improving the company's financial situation.
One of the causes of financial problems in the company is the lack of proper debt collection. It happens that our contractors do not pay on time, which means that due to the lack of financial resources, we cannot pay our liabilities on time, which means we lose good suppliers and become unreliable on the market.
The easiest method of debt collection is to send a reminder to the client about the lack of payment or a request for payment. If this method proves to be insufficient, more radical measures should be taken, such as using the help of a debt collection company or bringing the case to court.
Collecting money from debtors is often a long-term process, so you need to bear in mind that just employing a debt collection company or bringing the debtor to court may not be a sufficient solution to quickly obtain funds needed to settle current liabilities.
Gaining new contractors, increasing the prices or quality of the offered products
After a thorough analysis of our business, it may also turn out that the reason for the loss of financial liquidity is the lack of a sufficient number of customers, too low quality of services or goods sold, or too low prices.
Underselling prices by entrepreneurs most often happens in the initial phase of a business. When we want to attract a client, we offer prices much lower than the competition, for fear that potential contractors will not choose us due to little experience in a given industry. Usually, this is a mistake, because by lowering prices, we do not receive a fair payment for the services provided or goods sold, and even though we have a sufficient number of customers, we earn little and our costs are too high in relation to the revenues. Unfortunately, raising prices may result in the loss of existing customers, but overall, by applying fair rates, we will get paid that will allow us to maintain a good financial position for the company in the future. If we lack customers, it is worth getting interested in advertising and marketing.
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It may also turn out that the lack of financial resources results from unsuccessful investments. Let us therefore consider whether the sale or lease of assets entered in the fixed assets register will not be the solution to our financial problems.
Another option is a credit, loan, revolving limit on a bank account, credit card, factoring, etc., thanks to which we can quickly and easily obtain additional funds for running a business. When deciding on any form of crediting your expenses, you should compare the offers of various banks or factoring companies. It happens that the proposed conditions differ significantly, and too much burden in the form of commission and interest may have the opposite effect - instead of improving financial liquidity, it may contribute to even greater problems in the company.
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How to overcome financial problems in the company?
Running a sole proprietorship is not easy, especially from the point of view of asset management and maintaining the company's financial liquidity. As we can see, the suspension of business activity or liquidation of a company is not the only solution in the event of a temporary shortage of funds. There are many solutions that can contribute to the improvement of the company's financial situation, before deciding to suspend the business, it is worth considering the pros and cons of various options, such as obtaining additional money (credit, account limit, credit card), extending the scope of activities performed in as part of a business or sales market, e.g. by setting up an online store or providing online services.