Acting quickly at the first sign of financial distress is essential when attempting to turn around your struggling business.
The earlier you act, the more options are available to you, whether the business is already insolvent or on the brink of a cash flow crisis.
No company director ever wants to find themselves in a position where their business is at risk, but the important thing is to keep calm if you have arrived there, know your options, and take advice.
Is Your Small Business Struggling Temporarily or Are You Insolvent?
If you are concerned you may already be insolvent, check via our interactive insolvency test here and find out in 2 minutes.
From a legal perspective, directors should be especially cautious and informed about the state of the company finances when things are tight because, at the moment of insolvency, your legal duties shift from being to your shareholders to the company creditors.
Failing to take understand this and act accordingly can have serious legal and financial consequences for directors.
If your business remains viable for now, read more on your options below.
1. If your Business is Struggling, Take a Wider View
When you’re heavily involved in the everyday running of a business, it can be difficult to view the company as a whole and assess exactly where things are going wrong.
By taking a step back from the day-to-day activities, it is easier to see where the real issues lie and think about the positive changes you can make to resolve them.
If you’re reading this, you are clearly strategising for the future of your company. Part of that process could involve bringing in an outside expert to offer another perspective.
Putting your head in the sand and hoping things get better is a tactic that many directors of liquidated companies regret once its too late. So the first point is to gain perspective, accept your situation, then take decisive action.
2. What Changes can you make to Your Company now?
It’s all well and good making changes to improve the business for the better in the future, but when you’re facing a cashflow crisis, you need to take steps that have immediate results.
Thankfully, there are short-term finance solutions available to almost all small and medium sized businesses, such as invoice financing, merchant cash advances and alternative overdrafts, which could provide you with a route out of a sticky financial situation.
Whether or not you choose alternative finance, improving the cash-flow cycle is a primary goal for any struggling business. The minute your liabilities are greater than your assets, you have reached what is called ‘balance sheet insolvency.’
3. Are all your Business Assets Essential?
Some businesses get into trouble by investing too much capital in non-essential assets, such as buying stock they do not need, or spending more than is necessary on equipment and machinery. Selling excess stock, even at less than cost price, could free up the finance you need to rebalance your cashflow and move the business in the right direction.
Selling or refinancing assets might seem like a drastic step, but at this stage the reality is that without such positive action, your assets could well be liquidated anyway as part of a formal insolvency procedure.
At least taking this step yourself allows you to receive the maximum value for your assets and potentially save your business.
4. Are Your Employees and Supplier Relationships Essential?
For most business owners, selling non-essential assets is a darn sight easier than ending working relationships with suppliers and employees, but in some cases this might be the only option you have. Some small and medium sized businesses are guilty or expanding too quickly, and taking on new members of staff before there is enough work to warrant a full time role.
When you’re really struggling, ending relationships with suppliers and employees that aren’t absolutely essential to the performance of your company is something you should seriously consider.
The longer you wait, the worse the situation can become, so acting quickly can help to nip the situation in the bud before more jobs are at risk.
5. Streamline the Business
A common fault of company directors’ is their failure to identify where the real strengths of the business lie. The temptation to diversify and take on more activities is strong, but this increases the costs of the business and often detracts from its core operation.
In times of trouble, it is essential the directors revert to their core operations to give the business the very best chance of success.
What Insolvency and Rescue Procedures Might Help My Struggling Business?
If you have gone past the point where finance, restructuring or a new approach is going to help you, ask us about the following options:
- Company Voluntary Arrangement – a structured repayment plan with creditors arranged by an Insolvency Practitioner
- Going to Administration – Restructuring while protected from legal threats. Sometimes used to buy the time to arrange a CVA.
- Voluntary Liquidation – Directors choose to liquidate to stop creditor pressure
- Pre Pack Administration – The old companies assets are sold to a new company that doesn’t share the debt liabilities of the old one. It is possible to retain employees, assets, equipment and even clients.
We specialise in business turnaround strategies
The reality is that almost half of all businesses fail in their first five years, and while no business owner will expect to face an insolvency situation, the majority of businesses will have to deal with an unstable financial position at one time or another. The difference between companies that ride out the storm and go no to prosper, and those that fail, is the swift actions of the directors, and the availability of expert assistance.
At Company Debt. we can provide the pre-insolvency advice businesses need to remain on top of their cashflow situation. To speak to one of our experienced turnaround consultants, get in touch today on 08000 746 757.