EveryMonth (March 2010): How Can You Help Your Company Survive a Cash Crisis?

A recent survey by PWC and the Daily Telegraph suggests that lack of support from lenders, scarcity of funding and bad management are the driving factors pushing companies towards failure. The report criticises lenders reluctant to spend time and money on nursing a company back to health, preferring instead to ignore the issue or pull the plug.

We‘d extend the criticism to a failure to take timely advice from independent professionals.

The key thing is that, to save your company, you must go for help early enough to take tough decisions in time. But if you have put your heart and soul into a business, its poor financial performance will be a very stressful experience, and its failure akin to bereavement. It’s often hard to ask for help, so you need advisers with the right experience and skills but who can provide that help in a positive and sensitive way.

The starting point: good independent objective advice

Taking objective independent advice from a trusted business adviser (such as an accountant or solicitor) or an insolvency practitioner will often be the right first step. To advise you properly any adviser must know all the relevant facts, so take the time to brief them fully. Look for personal recommendations and ask for references. Most advisers will also be happy to provide two or three hours of initial advice without charge – a good way to assess their capability and decide whether you could work with them.

Avoid wrongful trading

Quite simply: as a Director you must not allow your company to continue trading and taking credit from suppliers when anyone would reasonably think your company was insolvent. If you do, you can be made personally liable. See the ‘Hints’ section below for some practical steps you can take to avoid the risk of wrongful trading.

Don’t fight shy of the word ‘insolvency’ at all costs!

The very word ‘insolvency’ can be frightening, and could put you off approaching an ‘insolvency practitioner’, but it’s crucial not to bury your head in the sand: some specialist procedures can potentially be used to save your business!

With administration your company continues trading, administered by a licensed insolvency practitioner whose duty is to save the company as a going concern if possible, or at least to realise the assets for a better price than liquidation. This procedure can be used to restructure a company which has viable parts that are being brought down by unprofitable elements. In recent times the ‘pre-pack’ administration, has become very popular. Here the owners of a business buy it immediately out of administration themselves.

Another little-used but potentially powerful procedure is the corporate voluntary arrangement. Here a proposal for partial or delayed payment of your debts is put to your creditors. If a certain percentage of them vote to accept the proposal, the schedule of payments will be supervised by an insolvency practitioner. This can be useful if your business has suffered an unexpected problem such as a major bad debt but is otherwise viable, or the company is fundamentally viable, but burdened by debt.

 There is help out there!

There is help available if your company is struggling, but resist the temptation to bury your head in the sand and soldier on alone until it’s too late to take action. Like many business owners, you may still be able to save your business with the help of an empathetic and patient adviser. Take control early on, and seek out a professional adviser who recognises the intensely personal nature of your problem, and doesn’t automatically assume that the situation is hopeless. You need a team who can work with you and who may be ableto produce a creative solution.

You can download a more detailed fact sheet from our website, or call us for some initial advice about your situation. Contact James Hunt on 0845 868 0962 or email