What options do I have if my business is failing?

How to turn around a struggling company

If you believe that your business is failing, it’s important to take action quickly. The first step is to determine whether the company has entered insolvency, as this triggers the requirement for you to cease trading in order to protect your creditors.

Business failure can result from a range of issues, such as the loss of a key customer or an unexpectedly large bill. A general market downturn in this period following Covid has also proved challenging for businesses in many sectors.

So what signs should you look for that might indicate business failure, and what options are there if your business is declining?

What are the common signs of business failure?

These are just some of the typical warning signs for business failure:

• You cannot secure any further lines of credit or borrowing
• Creditors are relentlessly pressurising you for payment
• You’re finding it difficult to keep up with your business’ liabilities
• Members of staff are leaving
• The business won’t support your regular salary

If you’re experiencing one or more of these issues you may be able to reduce the pressure on business cash flow with the following options.

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HMRC Time to Pay (TTP) arrangement

HMRC operates a Time to Pay scheme that provides eligible businesses with extra time to pay their tax arrears – typically 3-6 months. Although you must keep current tax liabilities up-to-date, repaying your arrears without the pressure of HMRC reminders and penalties is a key benefit.

Alternative finance

Even if your bank is unwilling to offer additional business borrowing, you may be able to source an alternative form of funding that helps the business recover. Invoice finance is just one example of a range of alternative forms of finance - flexible, customised funding that’s relatively quick to obtain compared with traditional bank loans. Other forms that might be suitable, depending on your type of business, include merchant cash advances and asset-based lending.

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Informal negotiations with creditors

A licensed insolvency practitioner (IP) can negotiate with your creditors on an unofficial basis to temporarily lower your monthly payments. This would reduce the pressure on cash flow, and allow the business to recover some financial stability.

Formal negotiations with creditors – Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement involves formally restructuring your company’s debts, and can be a good option if the business’ decline is temporary. A CVA typically lasts between two and five years, during which time you repay a proportion of the debts, and the remainder is written off.

Company administration

When creditors are threatening legal action some companies enter a process called administration, which offers an eight-week respite from the threat of winding-up. It allows the appointed administrator to take action, which sometimes results in a CVA, or perhaps a business sale.

Pre pack administration

If the company meets all the legal requirements to enter pre-pack administration, the underlying business will be sold on. A licensed IP must be able to demonstrate that this process is the best option for creditors.

Creditors’ Voluntary Liquidation (CVL)

If the business has failed beyond rescue, your only option will be to enter Creditors’ Voluntary Liquidation (CVL). This results in business closure, but in entering the process you place your creditors’ interests first and fulfil your legal obligations as a director.

Many businesses are finding it challenging to recover during this post-Covid period, so if you believe your business is failing it’s important to seek licensed insolvency assistance as soon as possible.

Real Business Rescue are insolvency specialists. We can offer you a free same-day consultation to quickly establish your options, and we operate an extensive network of offices throughout the UK.