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Save My Business From Going Under

Written by Keith Steven Managing Director 6 April 2022

Ship going under

How can I save my business from going under?

In the aftermarth of the Covid-19 Pandemic, and its associated lockdowns, there is a real danger that many businesses will go under.  This is especially the case as support is withdrawn in the form of furlough and loans.  In addition HMRC have started to collect in debts racked up during the pandemic. So how can you stop your business going under?

Most businesses fail due to the following reasons

  • Insufficient start up capital
  • Failure to react to rapid changes in the market or competition
  • Poor cashflow 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.

So what can be done to save your business?

  • Go back to basics and analyse 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.  See our page on cost cutting to help with this.
  • Could your finance be too expensive?  - It is worth noting that invoice finance and factoring companies get get nervous if they think the business is struggling and the costs can go up hence 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 your 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.  See these insolvency tests to check if this applies to you.  If your company is insolvent then your directors duties change from maximising 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 misfeseance.  This is especially the case if your actions/inaction can be shown to be making the situation worse.

I have heard about CVAs - what are they and how do they work?

If you want to save your business from going under then we can help. However, you must not underestimate how much discipline you will need to do this. A Company Voluntary Arrangement or CVA 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. Secured creditors, most usually the bank, will need to be convinced that the business will succeed and their position is not compromised. This is where we come in. We have an excellent record ensuring that the banks stay on board. In addition we 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 company voluntary arrangement to work the directors need to be absolutely focused on saving the business. This means that they will need to have a daily cashflow model, costs will need to be cut dramatically, and very importantly the directors must have a realistic view of potential future sales. Part of a preparation of a CVA is to put together financial forecasts for the business. Our finance team can help in putting this together.

So how can a CVA stop a business going under? 

  • CVA's can improve cashflow and cut costs, quickly.
  • Stop pressure from tax, VAT and PAYE while the CVA is prepared.
  • Company voluntary arrangements can terminate employment contracts, leases, onerous supply contracts and all with NIL CASH COST.
  • You can terminate landlords leases with NIL cost with a well written CVA! Unilaterally walk away from the lease, using our expertise.
  • You can terminate directors or managers contracts too.
  • Board and shareholders generally remain in control of the company.
  • Much lower costs than Administration or Receivership.
  • Finally, it is ALSO a good deal for creditors as they retain a customer and receive a dividend on their debts.

Print out our flowchart on CVAs here

The main reason why this process is not used so 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.

Case studies where a CVA has saved the business

If you have read the case studies and the CVA worries page then please call us on 08009700539

Categories: What is administration, Implications for Directors

A Worried Director

The Ultimate Guide For Worried Directors

Worried about poor cashflow? Feel you have got into a bit of a mess? Covid-19?, How to pay wages on pay day? For reassuring advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539

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