My company is struggling financially: what are my options?

How can you save a struggling business and who can you turn to for help?

All businesses experience financial ups and downs. Issues such as customers paying late, changes in demand, and the departure of important staff can have an impact. External factors like the COVID-19 pandemic, rising energy costs, and increased inflation have also posed challenges in recent years.

Regardless of the reasons behind your issues, if your cash flow is struggling and it’s getting harder to settle your debts, there are various ways to steer your business back on course.

 

How do I know that my company is facing difficulties? [Explore warning signs!]

Many company directors keep a close eye on their financial status and are well aware when the business is facing challenges. Key signs to watch out for include:

• Frequent cash flow problems
• An expanding list of creditors
• Frequent pursuit of payments
• Elevated staff turnover
• Directors forgoing a salary
• Utilising the maximum overdraft limit
• Difficulty in settling tax obligations
• Facing rejection for credit from banks and suppliers
•  

If you identify certain signs in your business, there’s a potential risk of insolvency. Once the company reaches insolvency, you have a legal obligation to act in the best interests of your creditors. If you’re concerned about potential insolvency, here’s how to determine it and what steps you should take. 

 

What should be my next step if my company is in difficulties?

1. Explore your funding alternatives

If your business is facing challenges, you might not meet the criteria for conventional lending sources like a business bank loan. Nonetheless, it’s worthwhile to investigate if you can secure other types of finance.

Immediate cash flow remedies like invoice financing and merchant cash advances can offer a swift injection of funds, which you can utilise to settle debts, address problems, and stabilise the business.

2. Settle your tax obligation if possible

HMRC is a creditor that every business would prefer not to have. It imposes penalties and interest for overdue payments and possesses a formidable array of enforcement measures it can and will employ. In the direst circumstances, HMRC might serve you with a Winding Up Petition for an outstanding tax liability, potentially leading your company into liquidation.

If you’re finding it challenging to settle a tax bill, reach out to HMRC at the earliest indication of difficulty. You might be able to discuss a Time to Pay (TTP) agreement, allowing you to repay the owed amount over three to six months.

3. Sell non-essential assets

A frequent contributor to financial challenges in smaller businesses is excessive investment in non-essential assets. Selling surplus stock, even at a reduced price, or leasing office space to another business are simple methods to enhance your cash flow and steer towards financial improvement.

4. Reduce your non-essential expenses

Reducing costs is the simplest method to enhance your cash flow. Company directors often overlook day-to-day spending as the business expands, but a closer look typically reveals some non-essential expenses that can be eliminated.

5. Communicate with your creditors

If your financial situation is impacting your prompt payment capability, engage in a conversation with your creditors. Explain the circumstances and outline your efforts to address them. You might find your creditors surprisingly accommodating, especially if you have a history of timely payments. It’s also possible to negotiate a repayment arrangement that provides you with additional time to settle your obligations.

6. Simplify the business

The allure of expanding companies to diversify can be compelling, but it introduces additional costs and may divert focus from the business’s core strengths. If your company is facing challenges, returning to your most profitable activities can lower costs, enhance cash flow, and steer you back on the right track.

 

Is your company still struggling? Need help? 

All the above-mentioned steps can be implemented independently. Nevertheless, if you’ve reached a juncture where you are uncertain about the next steps or concerned about your company’s insolvency, reach out to our insolvency practitioners for expert guidance.

Seeking assistance for an insolvent business indicates that you’ve acknowledged the issue and taken proactive steps to address it. 

This proactive approach can shield you from accusations of misconduct and wrongful trading in the future. Moreover, it grants you access to a potent set of procedures to reverse your company’s fortunes.

 

Following a thorough discussion, we can guide debt management and insolvency procedures suitable for your company’s circumstances. Possible options include:

1. Refinancing – In case of poor credit history or strained relations with your current lender, we can connect you with lenders willing to support struggling businesses. They might extend a line of credit, though a personal guarantee may be required.

2. Time to Pay arrangement – If you’ve lagged behind on VAT, PAYE, or Corporation Tax payments, we can assist you in securing a Time to Pay agreement, allowing you to settle the owed amount over a standard period of three to six months.

While you can personally negotiate a Time to Pay agreement with HMRC, our familiarity with HMRC’s operations and the criteria they consider enhances the probability of a successful arrangement.

3. Company Voluntary Arrangement (CVA) – In cases where your company is insolvent and faces difficulties repaying numerous creditors, a Company Voluntary Arrangement might be a viable solution. It enables you to settle debts gradually while maintaining business operations. Approval from your creditors is necessary for the CVA, and the assistance of a licensed insolvency practitioner is essential for its establishment.

4. Creditors’ Voluntary Liquidation (CVL) – In situations where your business is insolvent and no longer sustainable, opting for a Creditors’ Voluntary Liquidation might be the most suitable choice. You enlist an insolvency practitioner to serve as the liquidator.

They will sell the company’s assets and distribute the proceeds among the creditors. Any outstanding debts will be forgiven, and the business will be removed from the Companies House register.

5. Pre-Pack Administration – When confronted with demands from a forceful creditor, you have the option to sell company assets to a third party through a Pre-Pack Administration. The asset sale partially or fully repays the creditors, and the purchasers, typically the directors of the former company, can establish a new company to carry on business without inheriting the old company’s debts.

 

Read More:   

• What happens to an overdrawn director’s loan if I move abroad
• What is a Statement of Affairs in corporate insolvency proceedings
• Insolvency advice: a guide for limited company directors
• A guide to managing business debt
• What Is Limited Company Insolvency

 

Seek professional guidance! 

We understand that this is a challenging period, but support is available. Reach out to our knowledgeable team for complimentary, same-day advice or schedule a consultation with no obligation at one of our offices situated across the UK.