Are you concerned your business is running into trouble?
Are you paying people late, or on the receiving end of angry letters from creditors anxious to be paid?
If you’re reading this article it means you’re actively looking to take action on your situation, either to fend off impending disaster, or to take the bull by the horns and put the company into insolvency.
In this article we’ll explore both options, and how you should proceed.
How do You Know if Your Company is in Trouble?
Let’s begin by listing some of the classic warning signs that suggest you business is failing. They are as follows:
- Banks are refusing to give you more finance
- You’re receiving threatening letter from creditors
- Directors are not taking salaries
- You’ve had to let staff members go
- You’re getting late payment penalties for your HMRC tax bill
What to Do When Your Business is in Trouble
(1) Look Your Debts in the Face
Acknowledging your situation, looking it squarely in the face, and taking action is infinitely preferable to putting your head in the sand.
We are regularly contacted by directors who have tried to ignore their problems in the hope they will disappear and, of course, they never do. The letters become more threatening, the bailiffs come knocking, and you lose the ability to tackle the problem in your own timeframe.
(2) Keep the Lines of Communication Open With Creditors
Creditors, and especially HMRC, do not appreciate being ignored and become more hostile as a result.
Even if you can’t pay, you need to let them know your situation, establish a time frame to pay, if that’s an option, and maintain clear lines of communication.
HMRC are not inhuman and are open to various options, such as time to pay arrangements, but only if you keep in touch with them about what is happening.
(3) Consider Finance
If finance is an option, you may be able to fund your company through the tough patch. The key criteria here are whether you have finance available to you, in your situation, and secondly whether it is a wise move?
Is the current downturn the result of an untenable problem with your company, or can things be turned around. If they can, are you too close to the situation to see what steps need to be taken?
If you conclude that the company remains viable, and can return to profitability, then finance can be a useful option. Obviously, sign personal guarantee documents very cautiously (or consider personal guarantee insurance) because if the company slips into insolvency these are going to be called in.
(4) Convene the Board of Directors
If this hasn’t already happened, now is the time to gather you key personnel together and discuss the situation plainly.
When your back is up the wall you’re going to need your key staff members working as efficiently and cohesively as possible.
If you’re the MD, you will need to go into that meeting projecting a confident, clear way forward. This is the time to really own your role as leader, for staff who detect fear or hesitancy will never follow you as effectively.
(5) Cut Costs
One way to increase cash flow is to cut costs. This may mean disposing of key assets, or it may mean letting go of staff.
Make a list of all your expenses on a spreadsheet and go through it carefully – with your accountant if necessary. How much can you save and where?
You might consider creating a document called a ‘break even analysis’ which tells you the minimum sales level required not to sustain a financial loss.
(6) Find a Licensed Insolvency Practitioner
To close a limited company with debts, you will need an insolvency practitioner by law. IP’s are not just involved with liquidation, however, but are adept are company rescue operations, such as agreeing a Company Voluntary Arrangement, a structured payment plan with creditors.
Seek a firm recognised by one of the professional bodies, and with relevant experience in your sector.
Help for Businesses in Financial Trouble
Sometimes the stress of keeping a failing business afloat can be significantly tougher than accepting it has run its course and shutting it down. At Company Debt, our remit is to help stressed directors find the best course of action through difficult circumstances, so they can get on with their lives.
Significant business failure can be life changing, but is also an opportunity for reflection, regrouping and opportunity. Failure is above all a learning experience and a catalyst for change. Working through the causes and results with a business mentor can be a rewarding experience before you begin your next venture.
The fallout from business failure differs widely, depending on your level of debt, the significance of your assets, and the degree to which you are personally liable. Above all, you need to seek advice from a licensed insolvency practitioner at the earliest opportunity to help you through what lies ahead.
Helping a troubled business requires a clear, unemotional mind state focussed on yielding the best results for the company. Actions may include restructuring, staff redundancies, acquiring finance, and communicating with creditors. Ideally, this should be done by an experienced company rescue specialist.
In our experience, the number one cause of business failure is because the individuals running the company didn’t focus enough on the actual mechanics of running the business. These are distinct from whatever service or trade the company is engaged in, but mean things like accurate accounting and cash forecasts, personnel management, market analysis and business planning.