Why UK businesses are choosing liquidation lifeboats over sinking ships

In recent years, UK businesses have faced a barrage of external challenges. Much like a ship navigating rough seas, businesses are being hit by unpredictable economic waves that threaten to sink even the most well-prepared ventures. As a result, many of them are having to make the difficult decision to liquidate their companies rather than being forced to.

According to Freedom of Information (FOI) data from The Insolvency Service, UK businesses are three times more likely to enter voluntary liquidation than ever before. But why is this happening, and how can businesses protect themselves running aground?

Battling against strong winds

In the past decade, the business landscape has been rocked by a series of global events that have created a particularly volatile environment. The ratio of voluntary to compulsory liquidations has reflected this turbulent decade, with the proportion dramatically increasing from a steady 2:1 from 1960 to 7:1 in 2023 and peaking at more than 25:1 in 2021.

Global political instability, particularly in the wake of trade wars, Brexit, and geopolitical tensions have caused a wave of disruption. Businesses have to fight harder to win customers that have less money to spend, it’s impossible to predict what’s going on in the market, and operating costs seem to be exponentially increasing. A key example of this is the ongoing disruption to supply chains. Many UK businesses rely on international suppliers for materials, parts, and finished products. The unpredictability of supply chains – whether it’s delays, increased costs, or outright shortages – has made it difficult for businesses to maintain profitability. These issues have forced many companies, particularly smaller ones, to consider liquidation when they simply can’t absorb the mounting costs.

A lifeboat for business owners

Another significant reason for the rise in voluntary liquidations is the ease of starting – and subsequently ending – a business today. The barriers to entry for entrepreneurs have never been lower. With an abundance of software tools available for accounting, marketing, and e-commerce, starting an online business has become relatively cheap and straightforward. But with this ease comes a downside: many businesses are launched without the thorough financial planning needed to withstand external shocks.

The same tools that make it easy to start a business also make it easier to liquidate one. Voluntary liquidation is no longer seen as a last resort or a failure. In many cases, it offers a flexible exit strategy that allows business owners to wrap up on their own terms. With fewer financial consequences attached, founders can choose to exit gracefully, regroup, and pivot to other opportunities.

This shift in perception has made voluntary liquidation less of a burden and more of a calculated business decision. In a world where starting a new venture is so accessible, closing one down has become just another part of the entrepreneurial cycle.

Staying Afloat

While businesses can’t control external factors like global politics or pandemics, they can control how they prepare for and respond to these events. Much like a ship captain adjusts the sails to weather a storm, business owners can take strategic steps to safeguard their ventures.

One of the best ways businesses can protect themselves is by investing in tools that give them greater control over their financial health. Cash flow management tools, for example, offer real-time visibility into where money is coming from and going. In times of crisis, knowing exactly what’s happening with your cash flow can be the difference between making it through a rough patch and going under.

Expense tracking and forecasting tools are equally important. By accurately predicting future expenses and revenues, businesses can prepare for worst-case scenarios while still planning for growth. These tools allow businesses to make data-driven decisions about where to cut back and where to invest, ensuring they remain nimble in the face of uncertainty.

But to survive long-term, businesses need to strike a balance between being prepared for the worst and positioning themselves for growth. Focusing solely on risk mitigation can cause a business to stagnate, while being too aggressive in pursuing growth can lead to overextension and vulnerability. A balanced approach involves creating financial models for both optimistic and pessimistic scenarios, ensuring the business has a plan in place no matter what external shocks come its way.

Charting a Course for Resilience

While the rise in voluntary liquidations may seem alarming, it’s a reflection of the turbulent environment businesses are navigating. But it doesn’t have to be the only option. By investing in the right financial tools and adopting a balanced approach to risk, businesses can stay afloat even when the seas are rough. A well-prepared business can steer through crises, adjust to changing conditions, and continue to move toward long-term success.

In today's business world, resilience isn’t just about surviving the storm – it’s about navigating it with confidence and control.