Devising A Business Approach To Survive And Prosper
During the worldwide Coronavirus COVID19 pandemic, many UK businesses are struggling to survive. The UK government has put various support packages in place along with numerous suspension relating to companies house and tax.
However, for business to survive moving forward. A robust achievable business plan is required to help directors rebuild after the pandemic.
Struggling business remain stressful and demanding for directors to, therefore, manage appropriately. It can then affect the whole team along with the possible failure having significant impact issues personally on the stakeholders financially and health-wise.
To consider gambling on your businesses future utilising monies contributed from your family or friends or perhaps deferring payments to your businesses creditors is, therefore, possibly fraught with danger.
Furthermore, the ethical hurdles involved in risking other peoples’ money is an essential stressor for most individuals.
Why Businesses struggle?
Businesses can often struggle due to:
- Develop beyond the existing management and directors’ skill set;
- ability to control the business’ operationally;
- Ill health of members of senior managers and critical directors;
- losing interest in the industry.
Furthermore, many businesses rely too heavily on a sole customer or supplier. Others businesses in this ever-changing world find developments in technology has eroded their competitive position or perhaps poor management has stunted growth.
Reverting to a strong, vibrant commercial standing requires a considered strategic plan of action. There are several short-term corrective actions which remain an option:
1. Recognising unnecessary assets and selling them off;
2. Turning stocks to cash;
3. Using a more proactive recovery method for debtors;
4. Longer payment terms from the companies suppliers;
5. Examining factoring or invoice financing options.
There are also three restructuring or turnaround options:
- Hive down,
- company voluntary arrangement;
Recent changes allow a monitor to be appointed, allowing a company a twenty business day period to retrench called a Moratorium.
Hive Down & Pre Pack Liquidation
This strategy is suitable for a struggling business during a process of restructuring while fending off a potential liquidation with a new corporate owner in control. The intended restructure is pre-packaged and agreed with secured creditors before initiating a liquidation.
The failing business then sells assets to a new corporate entity at market value, agreed by an independent market valuation. The purchaser may be to the failed companies current management team or its existing directors. It thus demands specific steps to be taken to avoid phoenix company issues emerging at a later date.
An arms-length sale, transacted by a licensed insolvency practitioner following appointment, may take place to an unrelated third party. The former director is not involved either in management or a directorship role, therefore, avoids creating newco as a phoenix company.
Once assets sold, the company then enters liquidation.
Company Voluntary Arrangement (CVA)
A CVA is when a company seeks the approval of its creditors to freeze the debt it owes at a given date. Then under the supervision of a Licensed Insolvency Practitioner, propose a plan for agreement by the creditors requiring a 75% approval to repay them over a set time, perhaps at a percentage in the pound while stopping creditor action. The agreement then is a legally binding agreement for all parties to it.
CVA’s provide companies with a breathing space so they may then turn the fortunes around while still being able to trade.
This option gives a struggling company undergoing financial difficulties a breathing space and handling perhaps immediate creditor pressures for what may be a viable company. An appointed administrator ( Licensed Insolvency Practitioner) reviews the business fundamentals and issues a report to creditors with their recommended course of action.
The Administrator has eight weeks to issue the report.
A Company Administration tends to benefit creditors, both secured and unsecured more than a liquidation. Administration leads to an Administrator managing the company for a set period using the aegis of a company rescue plan.
An administration formally begins following the appointment of an administrator by a secured creditor, by the board, or perhaps the outcome of a shareholder decision. The administration of a company is more expensive than a CVA and often considered for medium to larger companies. The actual operation of an Administration is more costly as mandated statutory compliance and reporting requirements remain required.
When administration ends
The administration ends when either:
- The Administrator achieves the purpose of administration. e.g. a CVA has been agreed with the companies creditors;
- The Administrator’s term ceases. Ends automatically after a year, but may apply for an extension.
Upon the administration ceasing, protection against any legal action your creditors take also ceases.
Some business may discover themselves in distressed financial situations. The critical point though to survival and ongoing growth is to recognise a strategically sustainable path for your business. That may involve some restructuring or combined with a hive down, company voluntary arrangement or administration answer.
For further support. Please contact HBG advisory by:
- FREEPHONE 0800 612 5448
- Arrange a FREE VIRTUAL meeting safe private in the comfort of your home or workplace.
- Join in on webchat on the bottom right of this web page.