The professional services sector represents a quarter of businesses in the UK and generates a collective turnover of £400 billion. Due to the nature of the industry which consists of consultancy, recruitment, accountancy and property-related services, it is highly reliant on the employment of knowledgeable and qualified employees. As the coronavirus pandemic erases income streams and disrupts the steady flow of consumer demand, company directors in the professional services sector have been forced to embark on cost-cutting exercises to protect the financial position of their businesses.
As workforces are furloughed to minimise company overheads, promotions are cancelled and working from home instructed, investment is urgently redirected to the maintenance of IT infrastructures and digital services. As the financial pressure increases on these businesses due to the shutdown of industries instrumental in generating new business, many companies have been pushed into financial difficulty.
As the housing sector braved a seven-week shutdown following the first national lockdown, this halted property transactions, making conveyancing and architectural services redundant during this period. As mortgage lenders closed their doors, estate agencies pulled down the shutters and workplaces prepared for the shutdown of physical offices, both strong performing businesses and companies with pre-existing issues experienced severe cash flow issues. As the pipeline of work emptied and the income drought continues into the second national lockdown, businesses in the professional services sector are turning to increase debt levels to survive during the pandemic.
If you are considering closing your professional services company, taking the company liquidation route can help you settle outstanding affairs with creditors and mark the end of your business as directed by a licensed insolvency practitioner. A Creditors’ Voluntary Liquidation is a formal company closure procedure for insolvent businesses, consisting of compensating company liabilities and closing shop. This route is typically taken voluntarily following months of accumulating debts, resulting in recovery to be extinguished. A licensed insolvency practitioner will be able to assess if your professional services business should be liquidated or can be rescued based on the cash flow and balance sheet for insolvency.
A licensed insolvency practitioner will function as the liquidator, responsible for realising company assets to generate funds to repay creditors. The remainder of debt may likely be written off if your business is asset and cash poor, minimising the value of the business. If you have signed a personal guarantee agreement, you will be held personally liable for paying the outstanding amount. Once you have appointed a licensed insolvency practitioner and made the executive decision to wind up your professional services business, creditors will be notified of your intention to liquidate the business. They will be presented with the Statement of Affairs which clarifies the financial position of your business.
The liquidation process will then commence, and the insolvency practitioner will continue to liaise with creditors. Company assets will be realised and the proceeds will be used to repay creditors in priority order, as prescribed by the Insolvency Act 1986. After the CVL, your professional services business will be removed from the Companies House register, ceasing in legal existence.
Deciding to liquidate your professional services business and putting this into motion can be difficult, in addition to the uncertain trading climate as a result of the coronavirus pandemic. Contact a member of the Real Business Rescue team for a free consultation to discuss a solution as we understand the importance of accessing urgent advice on a confidential basis during this challenging and unprecedented period of trading. It is vital to take this step early to increase the options available to you and to protect your business from creditor pressure which could quickly escalate into legal action, forcing your business into compulsory liquidation.
In response to the coronavirus pandemic, the government launched a series of financial support measures to help the professional services industry continue business operations, preserve jobs and maintain service levels. As national lockdown measures led to reduced consumer demand and the slowdown of trade, professional service businesses, from financial advisors, accountancy providers and legal consultants were left with limited hope to resume business operations at full capacity until the eradication of the virus.
The Coronavirus Business Interruption Loan Scheme (CBILS) offers finance and loans up to £5 million to smaller businesses. The finance is guaranteed to the lender by 80% and interest and any fees repayable after the first 12 months. To apply for a CBILS loan, your business must have an annual turnover of up to £45 million and you will need to show that your business has been adversely impacted by the coronavirus pandemic.
The Bounce Back Loan Scheme (BBLS) offers small and medium-sized businesses loans between £2,000 and 25% of their turnover, capped at £50,000. The government guarantees 100% of the loan and interest and any fees will be payable after the first 12 months. You can apply for the loan if your professional services business was established before 1 March 2020 and has been adversely impacted by the pandemic.
To keep employees in jobs due to the drop in consumer demand, the government unveiled the Coronavirus Job Retention Scheme (CJRS) which contributes towards a portion of employee wages until the end of March 2021. Under the scheme, employees will receive 80% of their salary for hours not worked, up to a maximum of £2,500, with National Insurance and employer pension contributions made by the employer.
Support schemes as such offer much-needed finance to businesses adversely impacted by the pandemic, however, they prolong inevitable company closure for financially distressed businesses. Many companies loaded with debt are hanging by a thread, temporarily surviving due to payment holidays and delayed loan repayments. We offer a free consultation to distressed company directors in the professional services sector, helping you access urgent advice in relation to company liquidation and rescue options. A Real Business Rescue office can be found over 75 locations across the country or we can provide free initial advice through virtual means or over the phone.
Andrew operated an accountancy firm which catered to small to medium-sized businesses and self-employed professionals with specialisms in providing taxation services to CIS (Construction industry Scheme) contractors. He recently established an umbrella agency offering in response to the IR35 private sector reform to expand his services to contractors working on private sector contracts impacted by the reform. The business largely depended on recurring monthly income from contracted clients and word of mouth referrals through a low maintenance, internal incentive scheme.
The business started to experience cash flow difficulties since the start of 2020, in line with early news of Covid-19. Andrew took out a long-term loan to help ease cash flow, investing the remainder towards a new system which allowed staff to access internal financial records remotely. He urgently took advice from Real Business Rescue, entering a Company Voluntary Arrangement (CVA) to restructure liabilities into affordable monthly instalments.
In addition to Covid-19 government support, this provided a lifeline which helped Andrew negotiate payment terms with the landlord for his second office location. To protect the business and compensate for the dip in income due to the coronavirus pandemic, two staff members were made redundant and one staff member switched between locations on a voluntary basis.
If you are interested in selling your professional services business due to financial distress, impending retirement or to direct your focus to other business interests, the route you take will be determined by the financial health of your business. If your professional services business is experiencing financial difficulty and is on the receiving end of creditor pressure, you may wish to settle your outstanding affairs and sell shop. By attracting a reputable buyer with industry experience and strong financial security, a new owner may be able to replenish the health of the business, invest in company operations and drive the business to success.
The severity of the damage caused to your business will influence the financial worth of your company, the type of buyer you attract and the final asking price. The business transfer market is pooled with business turnaround and restructuring experts dedicated to acquiring failing businesses and facilitating recovery. This is a cost-effective and sustainable way to generate profits from pre-existing businesses in the professional services sector, recycling resources and preserving any remaining value.
Selling a distressed professional services business can result in the business to be sold in parts to maximise returns and increase the chances of a successful sale. This route provides an alternative to company liquidation which sets outs to liquidate company assets, leading to the inevitable closure of the business. Carrying out a valuation of your professional services business can help determine how much it is worth and establish as asking price. If you would like to explore if the business transfer route is a profitable and worthwhile route to pursue, contact Real Business Rescue to carry out a free valuation of your professional services business.
Our licensed insolvency practitioners can quickly ascertain whether it will be possible to rescue your professional services business through restructuring strategies such as a Company Voluntary Arrangement (CVA), Fast Track CVA or Company Administration. Emergency funding or commercial finance might also be available through a number of competitive and trusted sources.
If your professional services business can be realistically rescued after earning some breathing space from creditors, a Company Voluntary Arrangement can help rescue your business. A CVA is a formal insolvency procedure administered by a licensed insolvency practitioner which allows you to renegotiate payments into an affordable payment plan typically lasting over 3-5 years.
A CVA can only be entered into following agreement from 75% of creditors (by value) and in most cases, it is likely to represent the best chance for the creditor to recover funds. Proposed payments should be realistic as failure to make payment could result in the termination of the agreement. If your business requires urgent restructuring support, a Fast Track CVA may help supercharge the recovery process for the business. A Fast Track CVA is a traditional CVA compressed into as little as six weeks, suitable for businesses hard hit by the coronavirus pandemic.
If your professional services business is overwhelmed by creditor pressure, putting your company into administration can protect it against legal action. This is a formal procedure administered by a licensed insolvency practitioner to rescue your business, shielding it from compulsory liquidation during the process. To take this route, your business must be contingently insolvent, have high asset value and predictable cash flow. A licensed insolvency practitioner will take on the role of administrator, responsible for overseeing the sale of company assets. The funds generated will be used to repay creditors, clearing the debts of the business.
If the performance of your professional services business is staggered due to restricted cash flow, commercial finance can release cash into the business, allowing you to redirect investment back into the company, boost services and expand operations. There are numerous forms of finance options which can help feed the needs of your business, such as invoice finance, asset finance or a business bank loan.
From financing industry equipment to reducing the income gap between invoices, there are commercial finance options available which can be accessed at competitive rates through Real Business Rescue. We work with over 50 finance lenders to offer a variety of product choices, contact a member of the Real Business Rescue team to obtain a free quotation.
If you are the director of a professional services business, you may be entitled to redundancy pay for which the average claim is £9,000, in addition to statutory payments you may be owed, such as unpaid wages, holiday pay and notice pay. Redundancy pay for company directors is paid from the National Insurance Fund and overseen by the Redundancy Payments Service (RPS). It is a common misconception that company directors are not entitled to redundancy pay, resulting in thousands of pounds worth of missed payments.
To claim redundancy pay, your business must have entered the company liquidation or company administration process. You must prepare and submit your claim within 12 months of your company entering the liquidation process or within 6 months following the liquidation of your company. You must have worked for your professional services limited company for a minimum of two years, worked a minimum of 16 hours and be paid through the PAYE system.
As part of our service, your appointed licensed insolvency practitioner will refer you to a regulated claims management company who will be able to assess your claim for redundancy and calculate your payment.
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