When faced with debt problems or crises – one obvious route to explore is continuing the business and trade out of the problems without seeking protection for creditors in the form of insolvency prepack administration or a company voluntary arrangement; or a creditor’s voluntary arrangement.
The benefit of a business continuity plan is that there is no risk of losing vital customers, suppliers or staff, and some of the key assets. The major downside is that all debts will have to be repaid, and the company trading performance may continue to deteriorate before the business improves. The directors will also need to consider the issue of whether they are continuing to trade whilst insolvent.
So how does one ensure the business continues?
Prepare a business plan to reduce costs, plan how to increase sales and produce a cash flow forecast that shows the business will become cash generative and repay pressing creditors. With a plan and with a cost reduction the business owners will have confidence about how easy or difficult this will prove.
Seek new funding to relieve pressure on the business:
Explore invoice discounting
Discuss debt restructuring with existing funders
Seek trade investments – if one is prepared to give up equity
Discuss the business position with key creditors and seek to write off some debt or reschedule the payments to give some space. With large creditors this is often a lot easier than with small creditors as your business is unlikely to be significant to them and they will not wish to lose any money.
Delivering the plan -to attempt to continue and to fail very quickly will mean there is an inadequate plan, or there is a lack of commitment from staff or perhaps there has been a further decline in trading conditions. You may question how you ended up in this position and there may be a need to temporarily or permanently strengthen an area of the business.
To pursue this option please call an adviser and discuss the options. Alternately ask them to develop a business continuity plan. The adviser will have experience of what is possible, able to give a detached view of what is practical and discuss the pros and cons.
After the call you should be able to take the next steps to resolving the issues, whether it be business continuity or prepack administration. Each business has its own especial elements and it is important to discuss this fully before making that next step.