Six steps to save a business in financial difficulty

By Richard Pinder, Director at Leonard Curtis – East Midlands

Six months have passed since the government began withdrawing support strategies for SMEs regarding rent arrears, loans and job protection schemes, and these have no doubt been hardships for business owners and advisers in the East Midlands.

Planning for the recovery remains a huge challenge for most businesses – and we include ourselves in it as business owners too – and the forecast for 2022 paints a difficult picture.

Recent research papers from global insurance giant Atradius and others suggest that next year we will see a dramatic 30% increase in pre-pandemic insolvency levels, affecting more than 21,500 businesses.

The forecast is echoed in the latest data from the government’s ONS (December 2021 Wave 5 Business Insights & Conditions Survey) which reports that of all businesses that have not ceased trading permanently, 7% said they had little or no confidence in their survival over the next three months.

This figure rises to 14% among entrepreneurs operating in the transport and warehousing sectors. About 25% of all businesses reported having less than 12 weeks of cash reserves to fall back on.

If you add to that Q3 2021 figures for County Court Judgments (CCJs) – up 139% – it’s no surprise that market analysts now estimate there are over 500,000 companies in financial difficulty, an increase of 17% since the last quarter.

We have most likely come across every conceivable financial problem facing businesses, but one factor remains the same in all cases. When it comes to saving a business, identifying warning signs early is invaluable.

This has been very difficult in the midst of a pandemic, but knowing what to watch out for – and what subsequent steps to take – a business has more time to react to any issues.

The longer it takes to recognize financial difficulties, the more they accelerate. When a company is unable to pay its debts, the options are often very limited. But even at this point, it’s important to remember that distress doesn’t necessarily mean disaster.

For those worried that their business’ cash flow issues are spiraling out of control, here are six steps:

#1 Take a step back
It’s hard not to panic in times of financial difficulty. But taking a step back from the situation usually makes it easier to identify possible solutions and reduces the risk of making rash decisions that make it worse.

We recommend that all key stakeholders be brought together as part of this process – playing their part in ensuring a stronger financial footing. It is at this stage that we are most often approached – giving those closely involved some respite and the specialist advice they need. During these initial meetings, key issues affecting a company’s finances are analyzed and solutions are developed to address the most pressing financial issues.

#2 Liquidate unnecessary assets
It is almost always necessary to be proactive in the face of significant financial problems. One approach is to liquidate all non-essential assets, which helps raise funds, satisfy creditors and overcome the worst debt problems.

It is essential to have a clear understanding of the tangible assets that are not vital to your business. Liquidating equipment, tools, vehicles or real estate can be a potentially life-saving lifeline.

#3 End non-essential relationships
When a company is under severe financial pressure, difficult decisions must be made for its long-term interests.

This could mean abandoning relationships with trusted suppliers and customers. It can be a difficult and painful process, but it is advisable to make these difficult decisions while the decisions are yours.

#4 Consider restructuring
Restructuring a business can breathe new life into it by refocusing on areas that offer more sustainable returns. To present a viable way forward for a business and its finances, a full-scale restructuring plan should be created, including details on debt management and consolidation strategies.

#5 Get expert advice
Getting expert advice on the most pressing areas at the right time can make all the difference in successfully managing debt and tackling cash flow pressures. Unbiased and trusted expert advice is always available to businesses at all levels of distress. This support and advice from third parties has a considerably positive impact on the result.

#6 Consider all available financing options
Businesses without strong credit ratings — and those whose loans are turned down by traditional lenders — should consider alternative financing options to potentially overcome financing problems.

Increasingly popular methods include factoring and invoice discounting, while asset financing and refinancing are other viable considerations. The main areas of growth are crowdfunding and peer-to-peer lending – both of which add valuable variety when it comes to funding small businesses with big ideas.

From 21 offices across the UK and the Channel Islands, Leonard Curtis provides directors of struggling companies, their stakeholders and professional advisers with positive strategic advice to enable them to maintain control of their business. . No matter how complex the situation, the advice we give is always straightforward and non-judgmental. And by working together, we are able to provide a support network for future planning.

For more information on Leonard Curtis, visit www.lcbsg.co.uk.

Sarah J. Greer