Six steps to saving a business in financial distress

By Richard Pinder, Director at Leonard Curtis – East Midlands

It’s six months since the start of the Government’s withdrawal of support strategies for SMEs around rent arrears, loans and job protection schemes, and these have undoubtedly been hard yards for business owners and advisers across the East Midlands.

Plotting recovery remains a huge challenge for most firms – and we include ourselves in that as business owners too – and forecasts for 2022 paint a difficult picture.

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

The forecasts are echoed in the Government’s latest ONS data (Dec 2021 Wave 5 Business Insights & Conditions Survey) which report that of all businesses not permanently stopped trading, 7% reported low or no confidence in surviving in the next three months.

This rises to 14% among business owners operating in transport and storage sectors. Around 25% of all businesses reported they had less than 12 weeks of cash reserves to fall back on.

If you add to this the Q3 2021 figures around County Court Judgments (CCJs) – up 139% – it’s no surprise that market analysts are now estimating there are over 500,000 businesses in financial distress, a 17% increase since the last quarter.

We’ve most probably encountered every conceivable financial issue facing businesses, but one factor remains the same in every case. When it comes to saving a business, identifying the warning signs early is invaluable.

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

The longer it takes to acknowledge financial difficulties, the quicker they accelerate. By the time a business is unable to pay its debts, options are often very limited. But even at this stage, it’s important to bear in mind that distress does not necessarily mean disaster.

For those concerned that their company’s cashflow issues are spiralling out of control, here are six steps:

#1 Take a step back
It’s difficult not to panic in times of financial distress. But taking a step back from the situation usually makes it easier to identify possible solutions as well as reducing the risk of making rash decisions that exacerbate it further.

We recommend all key stakeholders are brought together as part of this process – playing their part to secure a stronger financial footing. We are most often approached at this stage – giving those who are closely involved some breathing space as well as the necessary specialist advice. At these initial meetings, key issues that affect a company’s finances are analysed and solutions developed to tackle the most pressing financial concerns.

#2 Liquidate unnecessary assets
It’s almost always necessary to be proactive when faced with significant financial problems. One approach is to liquidate any non-essential assets – helping to raise cash, satisfy creditors and overcome the worst of debt-related issues.

It’s essential to have a clear understanding of which tangible assets are not vital to your business. Liquidating the likes of equipment, tools, vehicles or property assets, can provide a potentially vital lifeline.

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

This could mean letting go of relationships with trusted suppliers and customers. This can be a difficult and distressing process but it is advisable to make these tough decisions whilst the decisions are yours to make.

#4 Look into restructuring
Restructuring a business can give it a new lease of life – re-focussing on areas that deliver more sustainable returns. To present a viable route forwards for a company and its finances, a full-scale restructuring plan should be created – including details of debt management and consolidation strategies.

#5 Get specialist advice
Getting specialist advice on the most pressing areas at the right time can make all the difference in terms of successful debt management and overcoming cash flow pressures. Trusted impartial and expert advice is always available for companies in all levels of distress. This third-party support and guidance makes a significantly positive impact on the outcome.

#6 Consider all the financing options available
Companies without strong credit ratings – and those rejected for loans by mainstream lenders – should consider alternative finance options to potentially overcome funding issues.

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

From 21 offices across the UK and the Channel Islands, Leonard Curtis provides directors of struggling businesses, their stakeholders and professional advisors with positive strategic advice to enable them to retain control of their business. However complex the situation, the advice we give is always simple and non-judgemental. And by working together, we’re able to provide a support network for future planning.

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