Business In Financial Trouble?

Business is tough. Competition is rife in almost every industry and it’s common for businesses of all sizes to face difficulties, especially during and coming out of a recession. If your business is in financial trouble and you’re feeling the strain, it’s going to be useful to know what you can do and what you can’t. Knowledge is power, after all.

Probably the first thing that you need to do is to take a realistic look at your situation and work out whether you need to cease trading. Is your business in a lot of debt? Are you accumulating CCJs? Its helpful to be clear that your business is separate to your personal life – however, if your company is insolvent, but continues trading and incurring debt, you might be personally liable for the company’s debts if a wrongful trading or trading whilst insolvent action is taken against you. With this in mind you need to balance the risk of continuing to trade against losing the benefit of currently having protection against company debt.

Being honest is tough. It may be a worrying time, but think of it this way -that sinking feeling won’t go away by itself, so be proactive and take control. If the business is unsavable, or you just want to move on from it, shut down or liquidate now. Delay will only make matters worse.

Conversely, if your business is in financial trouble and you don’t want to cease operating, your priorities need to change. You’ve now got to focus on all creditors, keep your taxes in order and generally put your own interests to one side.

Talk to your bank and other funders.

If your cash flow has plummeted and you’re regularly exceeding your overdraft limit, you must take action before your account gets frozen. Speak to your bank and show them your plan. Being upfront and communicating is a good start. It is difficult to get further funding in the current climate, but at the very least you will want them to keep existing facilities in place. However, if your bank won’t assist, there are alternative funders.

Free up cash.

Cash is king. Look at ways to generate extra monies quickly. Cut out unnecessary expenditure, release staff if needs be, collect in your debts (use a debt collection agency to assist on the older ones) and sell any non-essential assets that you can. Try to extend the term of any finance agreements, and negotiate a reduction in rent payments. Target your best customers with your most valuable products or services in special offers.

Dealing with debt.

If you have creditors who are threatening legal action, it’s worth trying to strike up an informal deal. These arrangements involve an agreed repayment schedule over the short-term. If you have arrears of tax, you will need to do the same with HMRC, this is referred to as a Time To Pay (TTP) arrangement.

Be careful that you don’t over promise. A common pitfall is to have many separate informal arrangements with creditors, which when added up are completely unaffordable. Your creditors will be less forgiving if you miss payments after they have agreed to spread them. Honesty really is the best policy.

Dealing with a County Court Judgment (CCJ).

If your situation has deteriorated to the extent that your business has overdue debts and you’ve received a CCJ, you may be able to delay any proceedings (known as ‘setting aside’) or agree a certain payment plan. Of course, if you disagree with the nature of the judgment, it’s also possible to defend any claim.

Do I have any other options?

A Company Voluntary Arrangement (CVA) is a formalised deal with creditors. This kind of arrangement sees a certain amount of money repaid over a set timeframe.

It’s more official and legally binds all parties to the agreed terms. It protects your company from any legal action, so it is potentially a powerful restructuring and refinancing tool. As much as there are upsides, there are also downside to CVAs. It is something that needs to be carefully considered with a reputable insolvency practice, and its suitability for your business fully assessed before it is entered into.

We also specialise in CVAs here, so please contact me for further guidance.

Entering administration or liquidation.

It may be that it’s best for your company to enter voluntary administration or liquidation. This need not mean the end of the road for your business, if at its core it is viable.

Administration and liquidation are powerful tools that should not be entered into lightly, nevertheless they do potentially rid the company of debt.

Both processes can be used to save the business by transferring the insolvent company’s assets to a new business, or if the business is not viable, then they can be used to bring the company to an end.

We deal with scores of liquidations and administrations every year, so if this is a consideration, please contact me.

In summary.

There is not a one size fits all approach to saving a business in financial trouble, and many of the options available depend on where you and the business are currently up to.

If you are concerned about which way to take your business forward, contact me for a free assessment. Please note fees are not incurred until we decide on the way forward and you have signed formal terms of engagement.

Best of luck.

Eamonn Wall
Managing Director