Save My Business From Going Under

In the current low growth economy with associated higher costs and taxes there is a real danger that many businesses will go under. In addition, HMRC have started to collect in debts racked up during the pandemic. So how can you stop your business going under?

The Common Causes of Business Failure

Most businesses fail due to the following reasons:

• Insufficient start-up capital
• Failure to react to rapid changes in the market or competition
• Poor cash flow control and inadequate financial reporting
• Not having a plan for the future
• Relying on too few customers
• Straying from what they do best and chasing other sources of revenue.

Your First Steps to Save a Business

If you have identified that your business is struggling, you can take these initial steps to save it:

• Go back to basics and analyze what is going wrong. It could be a particular product or service that is dragging down the business.
• Look closely at the costs in the business.
• Could your finance be too expensive? It is worth noting that invoice finance and factoring companies get nervous if they think the business is struggling and the costs can go up, creating a vicious circle.
• Get advice and ask someone to reality check the reasons why the business is struggling.
• If the situation is critical and you face an immediate threat from creditors such as HMRC, then get advice immediately!

Remember Your Duties as a Director

If your business is struggling then it may actually be insolvent. If your company is insolvent then your directors duties change from maximizing returns to shareholders to ensuring that you act in the best interest of ALL creditors. This means not making the situation worse, moving assets, or paying some creditors before others. To demonstrate this, the most important thing to do is to ACT. Consult a turnaround or insolvency practitioner (initial meetings are free). If creditors are pressing to be paid and starting legal action and you fail to act, then you do run the risk of personal liability, wrongful trading, or even misfeasance. This is especially the case if your actions/inaction can be shown to be making the situation worse.

The CVA as a Solution: How It Stops a Business from Going Under

If you want to save your business from going under, a Company Voluntary Arrangement (CVA) is a powerful tool. It allows the directors to stay in control and pay off creditors over time. The CVA protects the company against unsecured creditors from taking action against the company. This is where we come in. We have an excellent record ensuring that the banks stay on board and can persuade HMRC, who are a preferential creditor, that the business is viable and that they should support the company’s restructuring plan.

In order for a CVA to work, the directors need to be absolutely focused on saving the business. This means they will need to have a daily cash flow model, costs will need to be cut dramatically, and very importantly, the directors must have a realistic view of potential future sales. Part of the preparation of a CVA is to put together financial forecasts for the business. Our finance team can help in putting this together.

A CVA can stop a business from going under by:

• Improving cash flow and cutting costs, quickly.
• topping pressure from tax, VAT and PAYE while the CVA is prepared.
• Terminating employment contracts, leases, and onerous supply contracts with NIL CASH COST.
• Allowing you to terminate landlords leases with NIL cost with a well-written CVA.
• Ensuring the board and shareholders generally remain in control of the company.
• Having much lower costs than Administration or Receivership.
• Providing a good deal for creditors, as they retain a customer and receive a dividend on their debts.

The main reason this process is not used as much is that there is much ignorance and prejudice around the process. We have a page called CVA worries that seeks to challenge these misconceptions.

If you have read the case studies and the CVA worries page then please call us on 0800 9700539.