A company can find itself in financial trouble for all sorts of reasons.
Make sure you know exactly what is being spent every day. Keep a close eye on accounts and cut out non-essential costs. You’d be surprised by how many things you don’t need.
See here for more tips on cutting costs.
Collecting late payments is a vital part of the business but it can also be time-consuming. Ensure you have a suitable credit policy and always have agreements in writing. Verbal correspondence will make chasing debtors more difficult.
In order to do this you will need have good financial controls and data. Maybe appoint a part time accountant, advisor to sanity check the situation. We work with a specialist turnaround accountant who concentrates on cashflow rather than year end accounts.
With the Bank of England Base Rate currently at 3.75%, traditional bank lending might be tight. Look into Asset-Based Lending (ABL) or Invoice Discounting to unlock the capital already sitting on your balance sheet.
HMRC’s late payment interest is currently 7.75% An informal TTP can stop the 10% daily penalties that kick in after 31 days of non-payment. So call HMRC and try and get a TTP arrangement. You can call them on 0300 200 3820 Opening times: Monday to Friday, 8am to 6pm. Closed bank holidays. They are likely to offer 6-12 months breathing space.
If you are not already then make sure you try and agree better terms with your trade creditors. Mainly just be honest about the situation rather than try to fob them off.
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 the Growth Guarantee Scheme
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.
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.
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.
If it looks like you cannot stop the pressure yourself and say you think it is unlikely you can pay the wages at the end of the month, or a creditor is threatening a winding up petition Then more drastic action is required. This is especially the case as if the company is insolvent then the duties of the directors shift to the creditors. Failure to act can result in personal liability and wrongful trading claims.
Many insolvency practitioners will give free initial advice to give you an idea of your options. Formal insolvency mechanisms can give you legal protection (Insolvency Act 1986 and case law) from creditors to give the chance of the company’s survival. See below for what we can do to help!
If creditors are threatening legal actions, it’s worth looking at what we call, Plan A. This is an informal deal with creditors as a way to pay back debt over a relatively short time period. We may be able to arrange a Time To Pay (TTP) deal with HMRC on your behalf if you’ve fallen behind on VAT and PAYE payments. We have recently agreed a 4 year time to pay arrangement for a client.
Similar to Plan A, a CVA is a formal deal made with creditors to ensure debt is repaid over a set time-frame. The arrangement protects your company from legal actions and is a powerful restructuring and refinancing tool. Unlike a Time To Pay deal, up to 60% of unsecured debt can be written off. For a detailed CVA guide, click here.
If the company is under threat from an aggressive creditor, selling the company in a pre-pack administration deal to a third party may be the best option. This ultimately gets rid of debt and allows the business to continue. It is possible to sell the business back to its current directors/shareholders but this can be tricky as there are various regulatory hoops that need to be jumped through. This works well if there is vital brand or intellectual property that needs to be preserved and any period of non trading would be fatal. It is an expensive process, so is best for larger companies.
So if you are worried that your business might be in trouble or even insolvent have a look below at the various indicators of financial distress.
They say that money isn’t everything, but poor cash flow is a problem in business and is often a clear indication that the business is in trouble.
Cash flow issues can be identified with proper forecasting, which will identify the cash shortage problem areas or overspending.
Interest rates are creeping up again due to the energy crisis after more than a decade of historically low rates and having too much debt within a company may place it at risk.
If you are seeking out additional funding and lenders are seeking stronger personal guarantees or security against any money they lend this could be an indication that your own business is in trouble.
When it comes to your own finances, defaults on tax payments to HMRC or other formal payment arrangements can be particularly damaging and lead to penalties.
It can also be bad for your reputation and that of your business if it becomes clear that you are struggling to make payments on time.
A lot of businesses are reluctant to chase payment because they do not want to damage their relationship with customers or reduce the prospect of future work.
However, regularly allowing late payments can affect your own finances and prevent your own suppliers from being paid.
If you are dealing with late payment issues you should seek professional advice to improve your credit control processes and, if necessary, eliminate late-paying customers from your business.
If you are unable to effectively chase payment it may cause future cash flow problems. We have found that many professional service firms, especially lawyers, are often either not billing clients for work in progress or chasing invoices.
Either way, sudden changes in these numbers should be investigated to see whether they are signs of something more serious.
High sales are great, but profit is the key to survival and growth.
Falling margins suggest that costs are too high, and prices or income are too low. This is not a sustainable position for any company.
Indications that this may be happening within a customer’s business are changes within its own operations, such as the cutting of service or product lines, redundancies or an overall poorer quality of goods or services.
Reduced hours, contractual changes and pay freezes can all be signs of trouble within a business. Constant arguements at Board Level are another indicator of financial stress.
Late filings of accounts and returns at Companies House, leading to penalties. This indicates poor management or having to spend too much time placating creditors.
Of course lots of entrepreneurs use their own funds in the start up phases of a business. However, if the trend is the company is losing money and you are just replacing it with your own personal money then what is the point to put it bluntly? Not only is it soul-destroying, but if you are putting personal money into a failing company without a clear recovery plan, you may be throwing ‘good money after bad’ while increasing your personal exposure to creditors.” We recently helped a company where the director put in £500k of his own money to replace a lost customer in a £2m turnover business!
If you are not incorporated and are running a business as a soletrader, then the risks are higher if the business is in trouble as you will be personally liable. Instead of a CVA you may need to propose an IVA and if this is not affordable then you may go bankrupt. See our help for soletraders page
First of all we offer a free meeting to company directors/business leaders which can take 2-3 hours. We look at the current situation and advise, in a 15 page written report (delivered within 48 hours), what the options are available and our advice. Any work that we proposing doing is fully costed and put in writing at this stage.
Written ByRobert Moore
Marketing Manager
Rob has over two decades of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at RMT to develop strategic marketing programmes to support the business plan and drive more company rescues.
