What-to-do-when-your-company-is-struggling-to-turn-a-profit

4 essential recovery tips if your limited company is continually running at a loss

For a company director overseeing the affairs of a struggling business, envisioning a recovery can be challenging as debts accumulate and cash flow remains insufficient. Turning things around appears even more improbable when the company already has a weak credit profile and faces pressure from creditors, some of whom might be threatening legal action.

Fortunately, even when facing the possibility of winding up, there are both formal and informal solutions that could enable your business to negotiate with creditors, secure emergency funding, and ultimately regain a profitable operational state. 

If your business is currently operating at a loss, consider the following suggestions:


1. Attempt a Formal Arrangement with Creditors

At times, all a business requires to cease operating at a loss is fewer or less burdensome monthly financial obligations. Reduced minimum repayment requirements can free up the funds necessary to start turning a profit and capitalise on available opportunities.

An insolvency practitioner can draft and propose a company voluntary arrangement (CVA) on your behalf. In most cases, a CVA offers a higher likelihood of approval compared to informal negotiations conducted over the phone or via email. Not only does a CVA decrease your monthly payment commitments and consolidate all repayments into one, but it can also aid in restructuring or terminating employee and supplier contracts, thereby reducing overhead and payroll expenses.

 

2. Examine Secured Financing Options

Despite a poor credit rating, your business might still leverage its assets or outstanding invoice payments as collateral to potentially secure approval for a secured loan or credit account. Employing asset-based financing methods such as invoice factoring and discounting could enhance cash flow, enabling you to settle bills while maintaining profitability.

 

3. Consider Company Administration

In company administration, you would cede control of your business to an insolvency practitioner, who would serve as the administrator with the main objective of diminishing debts and meeting creditor obligations. Once the administration order is sanctioned, creditors will be barred from instigating any legal actions against your company.

If you lack confidence in the managerial abilities of your directors, this could be a highly effective method to bring about a turnaround under the guidance of a skilled professional. Our insolvency practitioners have extensive experience as administrators and can assist you in determining the best course of action.

 

4. Consult with an Insolvency Practitioner

After exploring the aforementioned options, it is advisable to discuss them with one of our turnaround specialists. We can carefully evaluate your situation and ascertain the most suitable course of action. As licensed insolvency practitioners, we are obligated by law to offer honest and technically accurate advice, always acting in the best interests of insolvent companies and their creditors.

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Bonus Tip – Cease Trading Immediately if There is No Prospect of Recovery 

If negotiations with creditors have failed, no financing options are available, and the imminent closure of the business is apparent, it is advisable to cease trading immediately. Notify both your creditors and HMRC about your intention to terminate the business.

This action will halt creditor pressures and prevent additional tax charges or penalties. Moreover, voluntarily closing the company minimises the risk of being accused of wrongful or fraudulent trading.

For complimentary advice on all matters related to business recovery, restructuring, and winding up, feel free to send us your questions or give us a call. With one of the nation’s most extensive networks of insolvency firm office locations, we can also arrange an in-person consultation if needed. 

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.