An alternative approach to business recovery

When cash flow problems are not addressed they can lead to standard business recovery options. But what if you could target the problem early on and save your business from administration or liquidation? Suzy Franklin, Client Director at Cashsolv, takes a look.

The lead up to business recovery

Many companies will suffer cash flow problems at some stage, be that as a result of bad debt, a lost order or simply a downturn in trade. If cash flow problems are not addressed early on then intervention will be required in the form of business recovery solutions.

Directors will often be able to steer their company through these challenging periods, returning it to profitability and a secure cash position. When these pressures are applied it can, however, be easy for directors to find they spend more time firefighting simply to continue trading, rather than actually dealing with the problem. In these circumstances, there is a risk that the position will deteriorate further, so much so that the company may find itself unable to settle liabilities that are due for payment.

Standard business recovery options

Depending on the circumstances, it may be determined that one of the following business recovery options is required:

• Administration, where the primary responsibility of the administrator is to achieve the best possible outcome for all stakeholders of the business;
• A ‘Pre-pack’ type of administration in which the sale of all or part of the company’s business or assets is negotiated with a purchaser prior to administration and the administrator effects the sale immediately on or shortly after appointment;
• Liquidation, where the emphasis is on optimising the return to creditors, by maximising the realisable value of the company’s assets.

In some circumstances, these will be the right options for the business; perhaps where there is no desire on the part of the directors to continue trading and an orderly wind-down of the company’s affairs is preferable.

But when the underlying business is viable and there is a commitment to continued trading, cashflow problems should not have to result in the diminution of the value of the business or, worse, in the company ceasing to trade altogether.

Alternative business recovery options

There are alternative solutions to the business recovery options available to businesses, designed to enable companies to continue trading and to achieve a more favourable outcome for the stakeholders in a business. But you need to act fast to attack the cashflow problems early on, before reaching crisis point.

Company Voluntary Arrangement (CVA)

A CVA is where a company can agree a deal with its unsecured creditors to vary the time and/or amounts due to them. Under a Company Voluntary Arrangement, you will keep control of your company and continue to trade as normal.

Emergency loans

Where a company requires cash fast, obtaining funding from a bank may not be feasible. A short-term emergency loan from an alternative lender will only be for a short period of time, whilst the immediate cash flow issue is resolved.

Asset-based funding

There may be a need for a longer-term funding requirement to aid business recovery. In these circumstances getting the right longer-term finance in place through asset-based lending can help you either grow your business or to fund expensive equipment or vehicle purchases that are critical to business continuity.

Creditor Payment Plans

Pressure from creditors can exasperate the situation further, as time spent trying to deal with these creditors can distract further from actually being able to spend time creating a solution to the cash flow problems. A formalised creditor payment plan can take the pressure of dealing with those creditors away and payments can be spread across a longer term.

HMRC Time-To-Pay Arrangements

When the creditor to whom you owe money is HMRC, a Time-To-Pay Arrangement (TTP) may the solution. Here you can negotiate a repayment plan of the debt, within the capabilities of your company’s cash flow commitments.

All too often many businesses leave it too late before they start looking at business recovery options. They wait for business to get better or bury their heads in the problem and refuse to seek help. Ultimately it is recommended that you seek professional advice on your cashflow management from a qualified practitioner as early as you can.