Help for Struggling Businesses

It’s important for directors to realise that help for struggling companies is available. You just need to know where to look.

Whether you call on a charity, HMRC, advice services, the Government or an insolvency practitioner, help is always available for those who ask for it.

Here we will explore the options that are open to struggling businesses, and offer tips on how to make sure you’re doing the right thing for your company during difficult times.

When might a business need help?

If a business is struggling, it generally means that there are cash flow issues that need to be addressed. Sometimes this means that a business cannot pay its bills on time, but in other instances it could be a sign of imminent insolvency.

If your business is facing financial difficulties, it’s best to seek professional advice as early as possible. This is when you’ll have the most options available to you and therefore be more able to turn your company’s fortunes around.

What are the warning signs of a struggling business?

• Pressure from creditors and delaying payments
• Borrowing to pay bills
• Difficult to get credit unless at high interest rates
• Directors putting money in rather than paying themselves a salary or dividends.

See our more detailed list of warning signs of a struggling business.

Seek help for a struggling business as soon as you’re uncertain about your next steps, or when cash flow becomes a problem. This proactive approach will help prove that, as a director, you’ve taken the appropriate steps to rectify the problem. This is extremely important if your company eventually goes into liquidation.

You may think that you won’t receive help for a struggling business if you have bad credit, a County Court Judgement (CCJ) or a history of trading problems. However, you still have several options open to you.

Types of help for a struggling business

The ‘do it yourself’ approach

Some company directors choose to try to do everything themselves, rather than seek help for their struggling business

While this is sometimes necessary, due to lack of funds or knowledge of the support available, we would always suggest seeking expert advice before acting.

Start by writing business, sales, marketing and operational plans for your business. This will help you identify your goals, as well as streamline processes and cut out unnecessary costs.

Explain this plan to key personnel, then have an honest discussion about the company’s future. Revise your plans according to the ideas they put forward and try to find alternative ways of saving money.

You could try a director’s loan (if funding is available to you personally and not the business, but you need to exercise caution), or discuss rent concessions with your landlord. After all, they’d probably prefer to receive some payment, rather than have the property sit empty for months on end.

At this stage, it’s probably best to tell your employees, customers, vendors, tax authorities and bank about the company’s financial situation if there are legal actions from creditors like court judgements or warnings of winding up petitions.

Rumours can be more damaging than the truth, so be honest about your situation and the steps you are taking to resolve it. This could include redundancies, so be frank with your staff about this possibility.

At this stage it is a good idea to talk to your creditors.  HMRC may even agree a time to pay arrangement whereby they will allow taxes to be paid off over a 6-12 months. By informing HMRC early about your situation, you will look less like you’re trying to avoid payment.

You can carry out all of these steps yourself. However, sometimes it takes an outsider’s perspective to provide worthwhile help for struggling companies and sanity check the situation as you are often too close to the business. If your own methods aren’t getting you anywhere, it’s best to try something else, fortunately you have lots of options.

Ask the government or local councils for advice

One of the best places to get help for struggling companies is the government. It oversees several schemes and advice centres that can offer support, and even funding.

One of the ways it does this is through Enterprise Finance guarantees, which were initiated by the Department for Business, Innovation and Skills. This scheme guarantees up to 75% of the value of a loan for a viable UK business that has already been refused mainstream forms of finance.

This initiative is designed to cover traditional loans, debt consolidation, refinancing, invoice finance and revolving credit facilities like overdrafts.

If you get approval, you’ll receive between £1k to £1.2 million over a period between three months and 10 years. However, these guarantees are subject to various criteria and most importantly you will have to personally guarantee the debt.

Seek advice from charities and organisations

There are many organisations offering help for struggling companies, including the Business Advice Centre and the Federation of Small Businesses.

It’s best to look for assistance within your local area. This is easier than you might think, as the government has compiled a list of the majority of financial support organisations in the country. Search this list by location and find the assistance that’s right for you.

These organisations can give you free advice and, in some cases, funding to help support your business.

Look into peer-to-peer funding or crowdfunding

Both peer-to-peer funding and crowdfunding work on a model that connects businesses with individual and corporate investors using an online platform. Peer-to-peer funding focuses on interest-based lending, crowdfunding is usually equity based.

You must adhere to the platform’s criteria and most investors will look at publicly available records, such as filed accounts. Both methods are time-consuming. The platform has to verify you, then you must create a pitch, convince investors and eventually come to an arrangement.

This is not the best method if you’re looking to improve your immediate cashflow problems, but it can help with long-term goals.

Meet with your bank or lender

Your bank or lender will be able to give you advice based on your specific circumstances. They will also be able to present you with several options and help you execute them.

For cashflow issues, a business loan might stave off insolvency and get you back in the black. Asset refinancing is another viable option: however, it does mean assets are at risk if you fail to adhere to loan arrangements.

You could also consider invoice discounting or factoring. Here’s a quick breakdown of the two:

• Invoice discounting – A type of debtor financing, the finance company advances a portion of your unpaid invoices (80-85%) so you have immediate liquidity. This is an ongoing process, but the outstanding amount changes as customers pay old invoices and you raise new ones.
• Invoice factoring – This accounts-receivable financing converts outstanding invoices due within 90 days into immediate cash. The factoring company will usually pay two instalments for your invoice (roughly 80% in advance, then 20% minus factoring fees after payment of the invoice).

All of these are good options for a struggling business, but you may need your bank or lender’s help in setting up these arrangements.

Try talking to an insolvency practitioner or company turnaround service

If you’ve tried all the other options, or don’t think they’re right for you, talk to either an insolvency practitioner or a company turnaround service.

They’ll be able to give you advice about insolvency proceedings or cashflow management that’s tailored to your company’s situation. They’ll have both your and your creditors’ best interests in mind, and will ensure that everything is done by the book.

They can often provide help for struggling companies by assisting with these proceedings:

• Informal arrangements
  This will involve negotiating with creditors to extend payment terms.  Most usually with HMRC who are often the biggest creditor.  2-4 year extensions are possible.
• Administration
  This is a more drastic measure for a struggling business, a moratorium is in effect placed around the company to stop creditors attacking it.  The assets of the business can be sold to a third party or to existing owners.
• Company Voluntary Arrangement (CVA)
  A formal process where the unsecured creditors agree a compromise on their debts and allow the company to pay them off over 3-5 years
• Voluntary Liquidation
• Refinancing

Many turnaround services, like Company Rescue, offer free advice tailored to your situation. You can access this through our live chat feature.

If your business is failing, it may feel like there’s no one to turn to. However, there are plenty of organisations that can help struggling companies prosper once more, the hard part is finding the best one for you.

If you’re worried about your company’s financial status, talk to our experts and explore your options today.