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This section
contains detailed plain English guides to this insolvency mechanism – read
down the page or click the little printer icon and the guide will open in
your word processor for easy printing.
If you
would prefer frequently asked questions guide to help you understand the
longer guide click here "Trading Out FAQ’s"
Trading Out a Guide
Isn’t it the most straightforward way of dealing with a cashflow problem?
If the company has suffered a downturn in circumstances because of a finite
set of issues and the business is not fundamentally weakened, then yes.
Including the largest companies, every business faces a cyclic cashflow
problem. Measurement of success cannot be short term, but events dictate
that every company will suffer at times, witness firms like the top
retailers and top telecoms companies recently.
If you have been through warning signs, establishing
insolvency and
do’s and
don’ts and you think your company is not that distressed then look at this
option.
A key element of this policy is honesty.
Be honest with yourself, the employees, your creditors and your customers.
Without this there is real risk that you will only make the current problems
worse.
It is important that you carefully and honestly consider the problems facing
the business. Ask yourself the following questions and gauge the answers:
1)
Is this business viable? If you could remove the problems or the pressure
does it have a real long term future?
2)
Is money all it needs to sort the problems?
3)
Can you achieve sufficient sales, activity or momentum to cover your costs?
We call this critical mass.
4)
Have you cut all costs to the minimum efficient level?
5)
If your activity does rise can you:
5a)
Fund it - working capital problems are just as acute for too many sales as
too few
5b)
Produce it - if your creditors will not supply will you be able to deliver
sales
5c)
Justify any further credit you may have to take - is there a reasonable
prospect of repaying that credit.
6)
Can you maintain the key people you need?
7)
Are you able to produce your service or product at a price that the market
can sustain?
8)
Would it be better to close the business and look at other opportunities?
9)
Have you got the fight in you to keep battling on without support?
10)
Have you taken advice from professionals?
11)
Have you involved the key partners in your business?
12)
Are you fearful of taking decisions to close, restructure or sell the
business and are seeking to trade out to defer that decision-making process?
If you now believe that the company HAS a future and that the problems are
not insurmountable then read on.
Trading out can be a very effective tool if handled correctly. There are a
number of ways to do this. The key is to achieve a breathing space for the
company.
"Informal" deal:
Merely calling the key creditors, explaining the position: you want to pay
them back in full as fast as possible but cashflow is tight and can you pay
them over an affordable timeframe, can work wonders. BUT do not do this
without a planned approach. You must
1)
Work out your cashflow - be realistic. If a debtor is due to pay in 30 days
check whether they are happy with the invoice and goods, check when they
think they will pay. Then add on 10 days at least.
2)
Build a daily cashflow, if you cannot write spreadsheets use a simple form
on a sheet of paper, but update every figure as you go.
3)
Not over promise. If it looks like you can pay all key creditors in 30-60
days ask for 60-90 days. Creditors will usually be happy to work with you if
you are honest.
4)
Not break deals. But if it is unavoidable, write and call the creditors and
explain carefully where the plan has not worked.
"Formal" deal:
This is not a formal insolvency deal such as a
CVA. But the use of a
professional turnaround practitioner can ensure that the "honest broker"
effect achieves workable deal. Once again the deal broker will want to see
evidence that the directors have planned their recovery and looked long and
hard at the business and its cashflow. Some creditors may even accept
write-downs of debt if they think the company will survive and prosper long
term.
If you want to be introduced to such a service please
email us.
New Finance allied to informal deal
As this suggests, the introduction of new money to the company at a time
when you are seeking to do a deal with creditors can be a very strong sign
that you are serious about the company’s future. See refinancing for further
details
Tips
Don’t wait until legal actions have been taken against the company to ask
for a deal. Try to plan the cashflow of the business well in advance - you
have a legal obligation to do this! If the directors do not think the
company has sufficient cash to trade they should consider the obligations
and options and plan a way forward. Worried about
legal actions? go to that page for more
details.
Keep a log of all calls and letters to creditors - that way you can check
back.
Have a review meeting each week - if you are falling behind take action.
If the plan is clearly not working consider the other options on this site.
Don’t wait too long to get professional turnaround help. Often a CVA can
remove the stress and allow you to get back to running the company, not the
deals with creditors.
Still got questions? then click here for Trading Out FAQ’s
Trading Out - frequently asked questions has much more information - if you
consider this to be appropriate then read this page. If there are still
unanswered questions contact CompanyRescue by
email
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