Updated: 7th January 2021
As a company director managing the affairs of a struggling business it can be difficult to envision a recovery when debts are piling up and cash flow is insufficient. Bringing about a turnaround seems especially unlikely when the company already has poor credit and is being pressured by creditors who may be threatening to take legal action.
Fortunately, even on the brink of winding up there are formal and informal solutions available that could allow your business to work out a deal with creditors, obtain emergency funding, and eventually return to a lucrative state of operation. If your business is currently running at a loss, consider the following tips:
Sometimes all a business needs to stop running at a loss is fewer or less burdensome monthly financial obligations. Lower minimum repayment requirements will give you the leftover funds needed to start turning a profit again and invest in opportunities as they become available.
A company voluntary arrangement (CVA) can be drafted and proposed on your behalf by an insolvency practitioner, and in most cases it will provide a higher chance of approval than informal negotiations carried out over the phone or via email. Not only can a CVA lower your monthly payment obligations and centralise all of your repayments into one commitment, it can also help you restructure or terminate employee and supplier contracts in order to reduce overhead and payroll expenses.
Even if your business has a poor credit rating it may be possible to use some of its assets or outstanding invoice payments as collateral in obtaining approval for a secured loan or credit account. Asset-based financing methods like invoice factoring and discounting would give you the ability to improve cash flow so that you'd have the funds available to pay your bills while still making a profit.
In company administration you would relinquish control of your business to an insolvency practitioner who would act as the administrator with the primary goal of reducing debts and satisfying creditors. As soon as the administration order is granted, creditors would no longer be able to initiate any legal actions against your company.
If you're not confident in the management capabilities of your directors this could be a highly efficient way to turn things around with the guidance of a trained professional. Our IPs have a wealth of experience serving as administrators and can help you decide how to proceed.
Finally, after you've researched the above options it would be best to discuss them with one of our turnaround specialists. We can attentively assess your case and determine what the most appropriate course of action would be going forward. As licensed IPs we are legally obliged to provide honest and technically accurate advice while acting in the interest of insolvent companies and their creditors.
For free advice on all matters related to business recovery, restructuring, and winding up, feel free to send us your questions or call us on 0800 644 6080. We also have one of the nation's most extensive network of insolvency firm office locations, so if you'd like an in-person consultation be sure to give us a call to schedule a local appointment.