My Business Is Failing - How Can I Save It?

We get a lot of directors and company owners contact us, worrying about their company failing.

Remember, having a business is risky and takes a lot of hard work and effort to run successfully and there are many external factors, over which you have no control, that can make or break a business.

The first thing to do is to assess the situation.  Is it insolvent already or is it approaching insolvency? Have a look at these test to check if the company is insolvent

What are the most common causes of business failure?

A few of the most common reasons are as follows:

1. Poor financial management
2. Extending too much credit and struggling to collect on outstanding invoices
3. Growing too quickly to what is sustainable and manageable
4. Unexpected costs
5. Sudden change in business environment
6. Ineffective marketing
7. Products outliving its life cycle
8. Bad luck
9. Theft and fraud (this is common and happens when the first one on the list is true)

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 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

How Can I Turn It Around?

It is hard to suddenly increase sales in a business so the very first action any director should take is to cut costs.

1. You must personally approve purchases. Then you can check if they are performing their job, if the pricing is fair, if they and your supplier are ripping you off, or if they are lazy and not getting the company best value.
2. Look closely at all employee expenses claims. Are these all for the business?
3. For now, CASH IS KING. Tight cash flow management will revive profits.
4. Request pricing reviews from all suppliers. Request a better deal? You could also request extended weeks of payment grace or monthly payments.
5. Request a rent break. Try monthly payments instead of quarterly? Cashflow improves. At this point, rent arrears are fine. 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. If you own property you may be able to do a sale and leaseback to release cash.
6. Request monthly payments from your accountants. If your accountant charge is £10,000 per year, pay over 10 months for £1,000 per month.
7. Manage cash daily! You may require a bookkeeper.
8. Ask a trusted friend or mentor. Discuss your business, actions, and sanity check. They may offer cost-cutting advice.
9. Can you use your own car and return the company car? It may also reduce personal tax.
10. Can you sell assets for cash? First, verify they’re not leased. Compare prices.
11. Ask your factoring or invoice discounting company to save costs by just drawing down funds weekly.
12. 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.
13. Cut out pointless meetings where nothing gets decided upon
14. Talk to employees all through the business.  You may be surprised what they know about customers, operations, managers, supply issues etc.

Options Should Your Business Fail And Become Insolvent.

Firstly, assess your business situation – could you offer better value to customers to bring in more sales?  Is your USP not  unique and becoming far from competitors now?  Do you have loyal customers and employees? Some tweaks to the business model can easily fix things. Otherwise:

1. Time To Pay Arrangement – an agreement with HMRC to repay your tax bills over a more structured period of 12 months or more.
2. Alternative Finance – seek further ways to be able to repay creditors. Invoice finance and asset finance are top options, with taking out further loans not advised.
3. Company Voluntary Arrangement – a formal payment plan, which creditors must agree too, that allows creditors debts to be paid back at a more suitable rate i.e. 3-5 years.
4. Administration – this allows a moratorium to be placed around the company so that legal action from creditors is prevented, giving breathing space whilst directors work things out to try and avoid liquidation.
5. Creditors Voluntary Liquidation – suitable if your company is not viable. It will allow you to stop trading, liquidating your assets to cash.

Advice

Recognizing 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 duty to act in the creditors’ interests if the business is insolvent. Failure to act properly could leave you open to personal liability.

In case of need, you can request our FREE 80-page PDF guide for worried directors. It answers everything you need to know about insolvency and your duties as a director.