It doesn’t matter how big or successful a business is, running one well is hard work. If you’re a startup, a big hitter, or even if you dominate the market, things can go wrong and sometimes things simply don’t work out. Ed Wade, from insolvency practitioner Wilson Field, offers company owners pointers on recovering a business from the brink.
The business plan just might not be right, unexpected costs could put the business into negative cash flow, or perhaps the market just isn’t ready for your big ideas.
However, just because your business hits a few financial stumbling blocks, it doesn’t necessarily mean that it has to spell the end for your business. Depending on the situation the business finds itself in, there are various ways it can be rescued.
Cash flow issues, repayments and debts – Invoice finance and commercial finance
Often these sorts of issues can’t be predicted. If an expensive piece of machinery unexpectedly breaks, the cost of replacing it could be huge and potentially put a business into turmoil. It could be late, or unpaid invoices, halting up cashflow and stopping a business from making outgoing payments.
When in this situation, it’s critical that owners don’t bury their heads in the sand, but instead try and tackle the issue head on as there could be potentially, business savings solutions available.
Late paying clients is a common problem for businesses and it can be a huge problem. If a business ends up waiting for money to come in, it can have a drastic effect when it comes to covering its own costs. This can hold up a business and gradually put the business into negative cash flow.
Invoice finance, could end up being a vital solution. Effectively, it enables a business to take out a loan based upon the value of its unpaid invoices.
A factoring company will lend a business up to 90% of an invoices value, pending their quality and the potential risks involved. For those who commonly suffer with late paying clients there are huge benefits to invoice finance.
Alternatively, if it’s the cost of replacing assets which is costing your business too much, a possible solution could come in the form of commercial finance. Commercial finance covers a few different options such as asset finance and re-financing.
If you end up being hit by a large debt, which ends up hitting you through the form of needing to buy a new asset, then naturally asset finance would be the right option. This allows businesses to purchase an asset over a set period of time, as appose to paying in one lump sum and potentially disrupting cash flow.
If, on the other hand, your business is asset rich but cash low, re-finance would be the way to move forward. This allows businesses to borrow money which is based on the value of its assets, this can help raise money and aid cashflow.
Creditors are on your back
If the business has unfortunately got to a really negative point and creditor pressure is simply too much, then a business may have to go through a different procedure. If the business can genuinely continue trading, then a repayment plan might be the best route forward toward saving the company.
A company voluntary arrangement (CVA) would allow a business to condense creditor debts into affordable payments, giving a business the opportunity to balance its liabilities. A CVA will normally last a maximum of five years with any remaining debts being written off at the end. This could avoid the company from being completely liquidated or even going through a dissolution procedure.
Pre-pack liquidation and phoenix
The final option available to businesses in trouble comes in the form of a pre-pack administration and then a phoenix. Although this would technically mean the end of a business, through the process of a phoenix a new one would be born through the ashes.
A phoenix company is part of a pre-pack arrangement, as the directors can pick up the pieces from the former liquidated company and carry on.
However, there are strict rules that revolve around a phoenix. It is perfectly legal to set up a phoenix company, even if the assets from the previous company are bought by the same directors, as long as it is at its market value and a new name is chosen for the business.
Almost all businesses will undoubtedly struggle at some point. Even if you go through a rigorous planning procedure, problems will occur. The sooner a business can see them coming the better, however, if an owner finds themselves in a sticky situation, there are financial solutions to be found which can help get the business out of trouble.
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