Updated: 11th February 2021
Losing key members of staff can be devastating for a business, creating financial uncertainty and a potential decline towards insolvency. Whether they were company executives or highly skilled employees, if you’ve lost valuable members of staff you need to act quickly to limit the damage to your bottom line and your reputation.
The cost of recruiting and training replacement staff members, and the associated loss of productivity, compounds the problem in terms of output and financial stability. So what can you do to deal with the situation and reduce its damaging effects?
Various forms of alternative finance may be available to your business if you’re struggling to recover from the loss of key staff. These include invoice finance, revolving credit facilities, and cash flow loans.
Alternative funding is typically flexible and faster to access than a traditional bank loan – it provides a financial buffer that allows you to deal effectively with the negative effects on trade, working capital, and productivity.
HMRC offers extra time to pay to some businesses struggling to keep up with their liabilities. The loss of key staff is a legitimate reason for experiencing cash flow problems, and if you’ve always paid on time in the past, HMRC may be able to offer your business an instalment plan called a Time to Pay arrangement (TTP).
If your business has already entered insolvency, a number of rescue and recovery options may help you restructure and move forward with confidence. Due to the formal nature of these processes, they must be administered by a licensed insolvency practitioner (IP).
Here are a few examples:
An important feature of company administration is the eight-week moratorium period that allows you to formulate a rescue plan without the threat of creditor legal action. There are various options for exiting company administration, one of which is a Company Voluntary Arrangement (CVA), and this can also be used as a standalone measure.
Company Voluntary Arrangement
A Company Voluntary Arrangement involves negotiating with creditors to reduce your repayments to an affordable level, with a view to trading your way out of difficulty. Success relies on relatively predictable cash flows, however, which may affect your eligibility.
Pre pack administration
Pre pack administration offers the opportunity to sell the underlying assets of a business to a third-party buyer, or in some instances to the existing directors.
Key person insurance
Taking out key person insurance could mitigate the risk of losing key staff in the future, through ill health. If you claim on a policy you receive a lump sum of cash to cover some of the resulting costs, such as recruitment, training, and loss of turnover.
Measuring the potential damage
You can view the reality of the situation by formally analysing the impact of losing a key staff member, and gain a good idea of the potential for damage to your business. Assessing the expected drop in income through the loss of contracts or lowered productivity, for example, highlights the situation you might face.
Risk management is vital in ensuring your business remains strong and resilient under threatening conditions. Real Business Rescue specialises in business turnaround and recovery, and helps organisations identify areas of risk such as the loss of key staff.
Our partner-led team can assess all your options and present solutions that limit disruption to your business in the worst case scenario, halt decline, and allow you to regain stability for the long-term. We operate from offices around the UK – call one of the team to find out more, and arrange a free same-day consultation.
13th October 2021
The Bank of England has said it anticipates that rates of corporate insolvency will increase in the coming weeks following the removal of restrictions on winding up petitions.Read More