If your business is in financial trouble and you’re feeling the strain, it’s useful to know what you can do and can’t do. Knowledge is power, after all.
The first thing you need to do is to take a realistic look at your situation and work out whether you should continue trading or whether you need to cease activity.
Is your business in a lot of debt? Are you accumulating CCJs? It’s helpful to be clear that your business is separate to your personal life but if your company is insolvent and 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 brought 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 that sinking feeling won’t go away by itself.
You need to be proactive and take control of your situation quickly. If the business is unsavable, or you just want to move on from it, then you should begin to shut down or start the liquidation process now. Delay will only make matters worse.
If your business is in financial trouble and you don’t want to cease operating then your priorities need to change. You’ve got to focus on all your creditors, keep your taxes in order and at least temporarily put your own interests to one side.
Talk to your bank and other lenders
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’s difficult to get further funding in the current climate, but at the very least you will want them to keep your existing facilities in place. However, if your bank won’t assist you, there may be alternative funders available.
Cash is king
Look at ways you can generate extra money quickly.
Cut out any unnecessary expenditure, release staff if need be, start collecting in your debts (including using a debt collection agency to assist with the older ones) and sell any non-essential assets that you can.
You should also 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 to see if you can extract any additional value from your transactions.
Dealing with debt
If you have creditors who are threatening legal action, it’s worth trying to strike up an informal deal because they aren’t going to go away.
These arrangements involve setting up 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 here. 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 so honesty is always 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 County Court Judgement (CCJ), you may be able to delay any proceedings (also known as ‘setting aside’) or agree to a payment plan.
Of course, if you disagree with the nature of the judgment then it’s also possible to defend any claim.
Do I have any other options?
A Company Voluntary Arrangement (CVA) a popular alternative. It’s a formalised deal with your creditors where you pay a set amount over a regular period, usually five years.
It’s an official process and legally binds all the parties to the agreed terms.
It protects your company from legal action from creditors, so it’s potentially a powerful restructuring and refinancing tool.
There are a lot of upsides but there’s some potential downsides to also consider. It has to be arranged by a professional insolvency practitioner and in order for it to be suitable for your business before it’s entered into as failure to keep up repayments could lead to some serious consequences.
Entering administration or liquidation.
Ultimately it might be best for a company to enter voluntary administration or liquidation. This need not mean the end of the road for your business, if, at its core, it’s a viable enterprise.
Administration and liquidation are powerful tools that shouldn’t be entered into lightly, nevertheless they do potentially rid the company of its debts.
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.
In summary, there isn’t 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 currently are.
If you’re concerned about which way to take your business forward, contact us to arrange a free initial assessment.
We can discuss your personal situation and see what the most appropriate options for you would be. Fees are only incurred when you sign a formal agreement with us to act for you and only then when we begin a plan that you’re fully happy with and agree to.