By Jon Munnery
When your company suffers an unexpected financial setback, or insolvency is on the horizon, it can seem like an impossible task to recover momentum and get the business back on track.
The problem is that warning signs of financial distress are so easily missed, and then suddenly you find yourself facing a full-blown crisis. So what can you do to avert the worst-case scenario – closure of your business?
Initially, you should call an emergency meeting of the board to establish the cause of your financial troubles, and formulate a plan to regain control.
Consider the best outcome for your business
By identifying the ideal end-result for your company, you can make a detailed plan to achieve it. You may need to raise a specific amount of finance, for example, to repay some of your debt or pay upcoming bills. This would also give you room for manoeuvre should any further setbacks occur, and provide a baseline of finance from which to grow.
So how might this be achieved?
Selling non-essential company assets
If you sell one or two hard assets that aren’t essential to everyday business operations, such as a piece of machinery or electronic equipment, you’ll gain access to a vital cash lump sum. Wholly-owned assets can also be used in a sale and lease-back arrangement that leverages their value, whilst still allowing full use within the business.
This form of alternative finance suits companies that are asset-rich but cash-poor, but there are other types of flexible finance that might be ideal if this doesn’t describe your own business.
Alternative finance options
With so many alternative ways to finance a business these days, you may find the banks’ reluctance to lend is not such an issue. Flexible funding solutions include invoice factoring and discounting, peer-to-peer lending, and inventory finance, any of which might be suitable as they offer their own specific benefits.
Seek professional advice
Obtaining reliable advice from an industry expert gives you confidence that you’re taking the right steps, as well as protection from potential allegations of misconduct or wrongful trading. With this in mind, if you’re approaching insolvency you need to place the interests of creditors first, ahead of your own and those of your company.
Improve your existing cash flow
You need to maximise your cash flow by invoicing regularly, chasing debts quickly, and making sure your credit control systems are reliable and efficient. When these processes are effective, cash flow stabilises and you have access to regular working capital to pay the bills.
Restructuring can streamline a business and improve its performance so that it’s better organised, and becomes profitable once again. The restructuring process might involve renegotiating contracts, or consolidating debt payments into a single monthly sum.
If restructuring your business is a possibility, it can provide the solid foundation on which to build a sustainable future without the previously burdensome leases, contracts and debt.
If you’ve already reached crisis point, a formal insolvency procedure may be the only way out. Company administration offers an eight-week moratorium period which halts creditor legal action. It provides breathing space for the appointed administrator to assess the company’s future, and stops further interest and charges being added to the debt.
Company Voluntary Arrangement (CVA)
Although a licensed insolvency practitioner (IP) is needed to renegotiate the company’s debt, a Company Voluntary Arrangement allows directors to remain in control in the long-term.
The IP will put forward a proposal to creditors, the aim being to negotiate a single affordable monthly payment, rather than multiple repayments under the original contractual terms.
Ready access to cash is the crucial factor when you’re facing financial crisis. It can save the business from closure, and with such flexible alternative finance options, may not be as inaccessible as you think.
Jon Munnery is a leading business insolvency expert and a partner at UK Liquidators the UK’s largest professional services consultancy. Jon provides support and advice to small and large companies alike with the benefit of over 20 years’ experience in the field.