What if Your Company has Financial Difficulties

What to do if Your Company has Financial Difficulties.

What to do if Your Company has Financial Difficulties. Written by John A Waller, Consultant. Reviewed June 24th, 2024.

It’s not fun to think about, but companies frequently face financial trouble. However, having a plan to deal with it is essential.

Although things may seem dismal, remain optimistic. Specialist insolvency advice often avoids business failure.

For any business, insolvency or struggles to turn around falling revenues can be a hugely stressful experience with many negative consequences.

Directors are responsible to shareholders for taking action in financial difficulties. They could decide to save a business or liquidate and close its doors.

A common problem is HMRC  tax debt problems and company cash flow problems.

What if Your Company has Financial Difficulties – Mental Health 

Managing a business is stressful enough when cash flow and profits are good. However, directors become more stressed once their business is in financial trouble and enters depression. It is vital to avoid any damage to your mental health to engage the services of a licensed insolvency practitioner, as found at HBG Advisory, sooner than later

Steps for a Company in Financial Difficulty to Consider

If you are in such a situation: –

  • What if Your Company has Financial Difficulties – Look at the overall picture.

Business owners often find that ignoring or working harder does not resolve the issue.

Instead of getting caught up in the tiny details, take a step back and look at the situation.: –

    • What procedures can you put into place that will be effective?
    • What requires reducing? 
    • Which aspects of your business are unprofitable?
  • Make adjustments to the way your company operates.

Directors should assess plans and contracts to avoid future cash flow problems. If the company’s staff needs to be fully qualified financial practitioners, it might be more efficient to outsource this process to an outside company.

Renegotiating some of the company’s debts is worth renegotiating if you receive professional guidance. 

Having a financial buffer reduces stress if unexpected costs threaten your company’s return.

  • Make your operation leaner and more efficient.

Focusing on essentials usually means increased profits. Therefore, redundancy, selling assets, and analysing what you need to run your business.

  • Dealing with unpaid tax

You should only use your allotted funds for tax payments, not to cover other expenses. This decision could jeopardise your company’s future.

At the right time, HMRC will target your PAYE, VAT, or corporation tax bill as due.

So when you can’t pay your VAT. Stop and seek advice urgently

If your business is in financial difficulty, one option that may help is arranging a Time To Pay (TTP) with HMRC. Therefore, you can pay any taxes owed over a fixed period. If you want approval for a TTP, you’ll need a strong business proposal and evidence that your company will still be doing well and pay off its debts within that period.

Effective management may allow your company to access emergency funds to settle timely payments.

  • Consider a Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a process that can help save your business if it struggles to pay its debts. This process allows you to consolidate your company’s debts into manageable payments.

A CVA, or ‘creditors’ voluntary arrangement,’ is a legally binding contract between an insolvent company and its creditors to partially pay off their debt over a fixed term. When this happens, each party must abide by the terms, and 75% of creditors must agree to them.

Usually, a CVA (Company Voluntary Arrangement) applies to a company as a last-ditch effort to save an insolvent business from closing completely. Creditors generally back it as they have a better chance of recouping funds than if the company goes under.

  • What if Your Company has Financial Difficulties? – Consider administration.

Being served with a ‘winding up petition’ can be daunting, while going into administration provides an ideal solution to handle the process. Even though it may not seem the best option, the administration might save your company if this problem occurs.

Administration is the transfer of your company’s management to an administrator or licenced Insolvency Practitioner who will manage the business for the benefit of creditors.

Handing over the management of your company protects it from shutdown or prosecution. An administrator buys you time with a qualified IP to find the best resolution.

If you seek professional guidance, the administration process can be long, cheap, and end in liquidating or selling your company’s assets.

  • The benefits of the pre-packaged administration.

Pre-packaged administration is where a company sells the viable parts of the business and assets to an existing director before an IP is appointed.

It’s a quicker, cheaper option for companies to extract a viable component from an otherwise insolvent business.

If the business becomes insolvent, an effective way to rescue it would be to have an independent financial advisor audit all current financial decisions.

What if Your Company has Financial Difficulties? Then contact the team at HBG Advisory at 0800 612 5448.

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If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448..
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