reviewed-by
Reviewed by
Christopher Andersen
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Reviewed by Christopher Andersen
Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,. He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
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16th April 2024

When a company faces financial difficulties, acting promptly can make a significant difference in outcomes.

This article aims to guide directors and business owners through some practical steps you can take to try and bring the company back on track.

What-To-Do-if-Your-Company-is-Having-Financial-Difficulties
Contents
  1. Steps to Take for a Company In Financial Difficulties
    1. Create a Cash Conservation Plan
    2. Engage with Professional Advice
    3. Communicate with Creditors
    4. Consider Formal Insolvency Procedures
    5. Consider Pre-packaged Administration

Steps to Take for a Company In Financial Difficulties

Create a Cash Conservation Plan

The objective here is to stabilise your company’s finances by maximising cash reserves and minimising non-essential spending. Start by conducting a thorough review of all your expenses to pinpoint where you can cut costs without critically harming your operations. This might involve renegotiating contracts, delaying non-urgent purchases, or finding more cost-effective suppliers.

Additionally, focus on enhancing revenue streams that require minimal investment to improve. Efficient cash management during this time is crucial, as it provides a buffer that allows your business more flexibility in its decision-making and helps avoid further financial strain.

Engage with Professional Advice

When facing financial challenges, accessing expert advice can be a turning point for your business. Reach out to insolvency practitioners, accountants, or legal advisors who specialise in corporate recovery. These professionals can offer a fresh perspective on your situation, providing insights and strategies that might not be immediately apparent from within your company.

They can help you understand your legal obligations and the implications of different recovery options, ensuring you’re making informed decisions. Their expertise in negotiation and restructuring can also be invaluable in securing agreements with creditors or navigating formal insolvency procedures.

Communicate with Creditors

Open and honest communication with creditors is essential when your company is in financial distress. Proactively approaching creditors to discuss your financial situation can lead to more favourable terms and prevent aggressive collection actions.

Start by preparing a clear and realistic proposal that outlines how you plan to address the outstanding debts, whether through renegotiated payment terms, partial repayments, or a structured settlement plan. Demonstrating a commitment to resolving the situation and keeping creditors informed about your progress can build trust and potentially secure their cooperation in finding a mutually beneficial solution.

Consider Formal Insolvency Procedures

When informal negotiations with creditors do not lead to a sustainable solution, it may be necessary to consider formal insolvency procedures. These procedures, such as administration, company voluntary arrangements (CVAs), or liquidation, offer structured ways to deal with company debts while potentially allowing the business to continue operating or ensuring a more orderly wind-down.

Administration, for example, can provide a company with protection from creditors while a plan is devised to restructure or sell the business. A CVA allows a company to reach an agreement with creditors about repaying debts over time.

Choosing the right procedure depends on the specific circumstances of your company, and professional advice is crucial here to navigate the legal complexities and implications for directors and shareholders.

Consider Pre-packaged Administration

Pre-packaged administration, or “pre-pack,” is an insolvency procedure where a company’s assets are sold immediately after it enters administration, having arranged the sale in advance. This method is tailored to preserve the value of a business by minimising the negative impact prolonged administrative processes can have.

A key benefit of pre-pack administration is its speed, which not only helps in preserving the business’s value but also in ensuring continuity. The business can often keep running under new ownership, which is crucial for saving jobs and maintaining relationships with suppliers and customers. Moreover, the costs associated with administration can be lower, potentially leading to better outcomes for creditors.

Facing financial difficulties? Contact Company Debt today to explore your options and find a tailored solution to navigate through your challenges.