How can I turnaround a failing business?

If you believe that your business is failing, it’s important to verify that it’s not insolvent. This helps you to avoid accusations of wrongful trading - if it’s entered insolvency, by law you have to prioritise the interests of your creditors.

So how do you know if a failing business has fallen into insolvency? When you cannot pay the bills as they fall due, or your balance sheet shows the value of company liabilities to be greater than its assets, it’s likely that you’re insolvent.

Even if your business has declined to this level there are measures available to turn it around. To take the right mitigating actions, however, it’s important to understand the reasons behind its decline.

Establish why the business has failed

The failure may have been almost imperceptible if it happened over a period of time. Conversely, if a key customer has been lost, the sudden fall in turnover could explain your current situation. Understanding why your business has declined ensures you take the right steps to turn it around, and don’t waste time on ineffective or unnecessary actions.

Seek support from insolvency professionals

Licensed insolvency support is available at any stage of business, and obtaining advice early on provides you with a significant advantage in this situation. A licensed insolvency practitioner (IP) will ensure you don’t place yourself at risk of wrongful trading, which is a significant issue – one that’s sometimes overlooked by directors who carry on trading with the best intentions.

Consider alternative finance

Alternative forms of finance are typically quick to access compared with standard bank loans, and offer businesses valuable flexibility. The most appropriate form of alternative finance largely depends on the type of business you run, and the industry in which it operates.

Businesses that own assets of value may benefit from asset-based finance, for example, without losing use of the asset(s). Invoice factoring is another example of alternative funding, and this injects regular sums of cash into the business to help keep up with bills so you can build confidently with new financial stability.

HMRC Time to Pay (TTP) arrangement

HMRC’s time to pay scheme offers help to businesses that are struggling to pay their tax liabilities. To be eligible for a TTP your business must not be insolvent, and you’ll need to provide documentary support for the application. This typically includes cash flow and sales forecasts.

Company Voluntary Arrangement (CVA)

This formal agreement restructures your debt repayments so they’re more affordable as the business trades its way out of financial difficulty. Typically suitable for larger companies experiencing decline for a specific short-term reason, a CVA protects the business from creditor legal action as long as you keep up with the repayments.

Administration

Company administration can help you turnaround your failing business, initially by providing protection from creditor action. During the eight-week moratorium, the administrator establishes a route out of administration, which could include the above CVA or perhaps a pre pack sale. Company restructuring in the form of a sale of non-essential assets could also free up valuable cash that encourages recovery and growth.

Creditors’ Voluntary Liquidation (CVL)

Although not a turnaround option, if your efforts to rescue the business aren’t successful, CVL ensures you fulfil your legal duties as a company director and can protect creditors from further financial loss.

For more information on potential turnaround options if your business is failing, please contact UK Liquidators. We operate a nationwide network of offices, and can offer you a free same-day consultation to quickly establish your best options.