Salvaging a business

Every company has its ups and downs but you need to ensure your business can run as a viable concern in the good times and bad. If your company is having problems, there are several things you can do to try to avoid insolvency – which is where a business doesn't have enough assets to cover its debts, or can’t pay its debts as and when they’re due. 

Managing cash-flow

Potential problems will be flagged up early if you regularly measure your business's actual performance against the budget and the cash-flow forecast. Maintaining decent cash-flow levels is, of course, imperative for all businesses and you can help do this by:

• Invoicing clearly, promptly and regularly - as soon as any work is completed and then determinedly chasing payment as soon as the money becomes due. Ensure that there is provision for regular payment throughout the duration of any long-term contracts you have.
• Not overtrading – if you don’t have enough cash and/ or resources to fulfil a new order, don't take it on.
• Not overstocking – efficient stock control ensures that company cash isn’t tied up unnecessarily.
• Adjusting your credit limits – renegotiate payment dates and credit limits with your main suppliers.
• Extending your finance – you could ask your bank to extend your overdraft but make sure you paint too black a picture or they might call in your existing overdraft and make matters worse.
• Factoring or invoice discounting – factoring involves selling outstanding invoices to a third party; with invoice discounting your retain control of your sales ledger but a company advances you a percentage its total in exchange for a monthly fee and interest.
• Selling under-used assets and then leasing them back.

Dealing with creditors

Any creditor or group of creditors, owed more than £750 can ask a court to wind up your business so don’t ignore them or lie to them. Answer their letters and calls. If you don’t think you’ll be able to fulfil the conditions of a payment plan, talk to them about renegotiating payment terms before the deadline for repayment has passed. Be honest about what you can repay when. Go first to creditors who would be lower down the list of who gets paid off in the case of insolvency as they are more likely to be more amenable.

Bringing down overheads

There are several ways you can reduce your overheads but careful thought should be put into where the cuts are made.  

Marketing

Spend on marketing is often and initial casualty but retaining existing business and attracting new customers is vital for a firm’s health and often marketing is the best way to do this. Consider refocusing your marketing efforts on existing customers who are always your best source of future work. 

Staff costs

Redundancies should only be considered as a last resort as they can increase costs in the short term (with redundancy payments) and can devastate morale of existing staff. Other ways of reducing staff costs include restricting overtime, cutting staff hours, recruitment freezes or persuading to lower their wages in exchange for other tax-efficient perks such as pensions, childcare vouchers, the provision of a nursery place, a home computer, a mobile phone or private medical insurance (this is known as a salary sacrifice scheme). 

Other measures

• Consider moving your premises to a cheaper location or leasing out any unused space in your existing premises.
• Lease essential equipment rather than buying it outright.
• renegotiating your contracts with suppliers

Call in the experts

If your business gets into trouble, you should take financial and legal advice as soon as possible to ensure that you are aware of all the alternatives available. Many lawyers specialise in restructuring businesses to help them survive, while an accountant – preferably one who knows your business - will be able to advise you on how best to shore up finances. You should seek professional advice straight away if you can’t cover your debts or pay staff wages, the business receives a county court summons or there is an acute lack of working capital.

Insolvency

Even if your company does become insolvent, there may be a way of saving the business.

Administration

An administrator can be appointed by your business, a court or certain specified creditors. They take over the running of the company and deal with creditors. Their role is to rescue the business if possible or failing that, get the best deal possible for creditors. 

Company voluntary arrangements

You can bring in an insolvency practitioner to prepare and negotiate a company voluntary agreement between you and your creditors. A repayment plan will be drawn up and if 75% of creditors by value agree to it, it is binding on all parties.

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