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Financial Forecasts in a CVA

14th April, 2020
  • Why do I need detailed financial forecasts to get a CVA approved?

Why do I need detailed financial forecasts to get a CVA approved?

If you are thinking of making a CVA (or IVA/PVA) proposal to your creditors, one of their critical prerequisites is your CREDIBILITY. Think about it: many of them will have been chasing you for weeks and may even have issued a Winding Up Petition. If you come back to them with what they may see as yet another promise about to be broken, or with a less-than-professional proposal to pay them, you can understand that they will need some convincing.

That’s where our skill in helping present forecasts for your business comes in. We help give you credibility so that when you stand up in front of your creditors and suggest to them that you will pay them X pence in the £, spread over the next five years, and that you will be paying them on time for all future supplies, they are inclined to believe you. That’s the job of work that well constructed and presented forecasts do.

We are often asked what sort of forecasts are required. The best starting point is whatever you yourself are used to using for your own management purposes. After all, these will be in a format and style with which you are most familiar and therefore give us the best insight as to which aspects of your business are most important.

Ultimately, a CVA proposal is a commitment to pay cash, of certain regular amounts, over a predetermined period of time. It is not an offer to pay profits. Therefore it is the cashflow element of the forecasts that is actually most critical. Having said that, our standard approach is always to forecast not only the cashflow, but also the P&L and Balance Sheet, all consistent with one another. All three are required for any proper analysis.

The reality of business is cash coming in and going out; it is accountants who then allocate those cash transactions into different periods of time and call them P&L accounts. Our template happens to be driven off a forecast P&L and Trial Balance (TB); on that basis, the assumptions converting the P&L back to the expected reality of cash flow become critical. We can, however, work equally well with a forecast whose starting point is cashflow.

If you do not regularly make use of forecasts, then that in itself tells a story and may well be part of the reason your business is in the predicament it is. Again, we can help you resolve that absence, whether with a short term cashflow template and/or the longer term combined template (P&L, CF & B/S). Either way, the emphasis is on restoring predictability, improved decision-making and, thereby, credibility and a successful outcome.

Below is a snapshot of a cashflow forecast when a business is in a CVA.

A forecast is not a crystal ball that tells us how the business will perform but, it is a tool that helps to paint a picture of the viability of a company that is undergoing a restructure. It is also a balancing act between being too bullish, and making promises that there is a risk of the business not being able to meet, or too conservative so that creditors are unimpressed by the return.

Like all analysis, it is important to have accurate facts and figures as to the company’s position to help make an accurate forecast. The more information that we have at the early stages the easier it is to help. That said, if you are struggling to get financial information out we can recommend accountants and perhaps part-time directors to help.
Financial Forecast

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What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

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What Is A Winding Up Petition By HMRC or Other Creditor
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Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

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Notice of Intention To Appoint Administrators
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What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the control of Licensed Insolvency Practitioners.  The directors and the secured lenders can appoint administrators through a court process in order to protect the company and their position as much as possible. Going Into Administration - A Simple Guide Administration is a very powerful process for gaining control when a company has serious cashflow problems, is insolvent and facing serious threats from creditors. The Court may appoint a licensed insolvency practitioner as administrator. This places a moratorium around the company and stops all legal actions.The administration must have a purpose and the Government encourages the use of company rescue mechanisms after administration. The 3 purposes (or objectives) of Administration Rescuing the company as a going concern. (Note: this purpose is to rescue the Company as opposed to rescuing the business undertaken by the Company.)Company rescue as a going concern – this is usually a  company voluntary arrangement. The company enters protective administration and is then restructured before entering into a CVA. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. When the company has its CVA approved by creditors, then the administration process comes to an end after 28 days. Achieving a better result for the company's creditors This is as a whole than would be likely if the company was to be wound up (liquidation) See the differences between Administration and Liquidation.  This better result is usually obtained by selling the BUSINESS as a going concern to one or more buyers. The company and the debts are “left behind”. The better result may include securing transfer or employees under TUPE, as well as selling goodwill, intellectual property and assets. Controlling and then selling property/debtors. This is called realising assets. Then the administrator makes a distribution to one or more secured or preferential creditors, in order of creditors priority. Usually the business ceases trading and employees are made redundant.Only if the first two options are deemed unattainable, can the administrator use this third option.Under the administration option, it is possible for the company and its directors (or a creditor like the bank) to apply to the court to put the company into administration through a streamlined process.However, the law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.  Be aware, though, that a secured lender can appoint administrators over a company without notice if it thinks its money is at risk.  So communication with the secured lender is essential.  

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What Does Going Into Administration Mean?

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