My Business Is Failing - How Can I Save It?

We get a lot of directors and company owners contacting us, worrying about their company failing and what to do about it.

As readers will know, running a business is risky and takes a lot of hard work and huge effort to run successfully. There are many external factors, over which you have no control, that can also make or break a business.

Usually, owners directors and senior managers will know when things are not working out well or according to their plan, usually the warning signs become apparent

The most important warning sign or symptom to worry about is lack of cash, or when your company is stretching payments to suppliers and HMRC for example.

If your company is failing to meet creditor payments then its important to act carefully and to assess the situation.  Is it insolvent already or is it approaching insolvency? Have a look at the statutory insolvency tests to check if your company is insolvent If you have concerns about these insolvency tests please read on below.

What are the most common causes of business failure?

We have been helping failing companies for 30 years and have learned a few common causes. Not all will apply, some may not seem too serious, but they can add up to worrying cashflow pressures.

1. Poor financial management, not having up to date accounting information, cashflow forecasts and a plan.
2. Not understanding your company’s gross margins – selling too cheap.
3. Extending too much credit to your customers and struggling to collect on outstanding invoices.
4. Growing too quickly and not having enough working capital to sustain fast growth.
5. Taking too much credit.
6. Borrowing too much across lots of debts from multiple lenders.
7. Unexpected costs or problems.
8. Ineffective marketing, or no marketing. Is there a demand for your service or product? What do you know about the market and what your competitors are doing?
9. Theft and fraud (this is common and often happens when the first cause on the list is true).
10. The biggest cause of business failure? Failure to act when warning signs are mounting. Saying to yourself or management, “don’t worry something will turn up” is not strong management. You need to build a plan and set out solutions to the problems.

Warning signs to look out for?

As a director, it can be hard to tell that your business is failing. These are just some key signs to look out for:

1. Constantly feeling under pressure.
2. Seeing risks escalating for you and your business.
3. Your business becoming insolvent (see our insolvency signs).
4. Receiving fewer and fewer customer enquiries.
5. A loss in ‘buzz’ about your business.
6. Despite marketing efforts, no results have been produced.
7. Your own bills aren’t being paid on time.
8. You’re experiencing a high staff turnover rate.
9. You’ve run out of ideas for new products and/or policies
10. As a director you cannot sleep at night.

(PS (see our full list here 99 warning signs)

So yes, I agree that our company is under pressure! What now?

It is hard if not impossible,  to suddenly increase sales in a business so the first action any director should look is can you cut costs.

1. For now, CASH IS KING. Tight cash flow management is essential. Companies can be profitable and run out of cash.
2. We always advise that you as the boss take control of cashflow issues. We advise that you should personally approve purchases. Then you can check if the spend is necessary and if the pricing is fair, if your staff and your suppliers are causing you to lose money, or if they are lazy and not getting the company best value.
3. Look closely at all employee expenses claims. Are these all for the business?
4. Assess fixed costs, is there any way of reducing these costs or reducing the cashflow impact?  For example, rent. Request a rent break from your landlord. And or try to get monthly payments instead of quarterly? Cashflow will then improve. Most landlords want to keep their tenants and may be forgiving.  In some larger businesses it may make sense to close down non performing premises.
5. Manage cash daily! You may require a bookkeeper if you don’t have one.
6. Ask a trusted friend or mentor. Discuss your business, actions, and ask for a sanity check. They may offer good advice.
7. Can you sell unused assets for cash? Verify they’re not leased. Compare prices.
8. Cut out pointless meetings where nothing gets decided upon.
9. Talk to employees all through the business.  You may be surprised what they know about customers, operations, managers, supply issues etc.

Cut Variable Costs – some quick ideas.

1. Ask the company’s  factoring or invoice discounting company to save costs by just drawing down funds weekly.
2. Find less expensive finance.  This can be difficult especially as you will need to provide management accounts.  However, it is always worth looking to see if you can get a better deal. We can help with this.
3. Can you use your own car and return the company car? It may also reduce personal tax.
4. Request monthly payments from your accountants. If your accountant and tax advice charge is £10,000 per year, pay over 10 months for £1,000 per month.
5. Request pricing reviews from all suppliers. Request a better deal? You could also request extended weeks of payment or monthly on account payments.

Options Should Your Business run out of cash – in other words it becomes insolvent.

Now that you are starting to plan ahead it is important to assess the company’s overall business situation. As a turnaround veteran of 30 years I always advise my clients to put this into three time frames:

• A cashflow plan and action plan for the next 30- 60 days. What does your cashflow forecast tell you after you have made as many changes, cut costs and spread payments out?  Can the company meet payroll next month?
• Then a medium term restructuring plan: what actions can help the company survive 3-6 months
• Then the long term restructuring plan for 6-18 months, this may include a team assessment of products/services, the marketplace, pricing. It may be apparent that the company needs to exit property, change product pricing, reduce employment costs or change tack altogether.

Then each month keep updating the three plans.

If these 3 periods are considered carefully you will find YOU are looking at the business in a more regular and in a disconnected professional way. This means that should anything go wrong (like a liquidation happens) you are acting professionally, reasonably and responsibly. This helps protect you the directors in future against personal risk of action, by liquidators.

If this assessment is done and the conclusion is that the company look like running out of cash quite soon, now is the time to get professional turnaround and or insolvency experts in to help. You will be surprised how often we find these initial discussions can lead to a successful recovery, with nil or modest costs and no formal insolvency!

We will advise on how to deal with debts and creditors; there are a number of options to do this:

1. Time To Pay Arrangement – an agreement with HMRC, landlords, suppliers to repay your company debts over a more structured period of 12 months or more.
2. Alternative Finance – we can help you look for further ways to be able to repay creditors and improve cashflow. Invoice finance and asset finance are options that can help, especially  where sales are growing. Taking out new expensive online loans to pay back existing loans is not a good idea though!
3. Company Voluntary Arrangement – this is a powerful formal payment plan, which creditors are asked to vote on, that allows creditors debts to be paid back at a more suitable rate for example over 3-5 years. This can lead to deeper business restructuring too, that can save money, cut direct costs and overheads and reduces employment/property costs. See our online guides for much more valuable information. LINK to CVA guide?
4. Administration – this allows a formal legal moratorium to be placed around the company so that legal action from creditors is prevented, giving breathing space whilst the administrators seek a sale of the business and assets. It can protect jobs and the “business” but the old company is then usually liquidated.
5. Creditors Voluntary Liquidation – if all else has been considered and if your company is just not viable then CVL is the logical option. It will allow the company to stop trading, liquidating the assets to turn into cash.

Advice

Recognising the likelihood of your business failing is the first step. Many business owners refuse to acknowledge there is a problem and so bury their head in the sand, don’t take action and then when the company fails, they are left wondering where it all went wrong!

As a director you have a legal duty to act in the creditors’ interests if the business is insolvent. And failing to take responsible action and failing to act can lead to YOU the directors, being held responsible for company debts.

If you would like to talk to someone about the lonely place you are in as  a director do get in touch with us. Our experienced experts like helping directors.  You may be surprised about how many ideas they can give you and help you plan an appropriate  way forward. These initial discussions will provide you with solutions and options without any cost.