When a business faces financial difficulties, it can be hard to know how to respond. Sometimes, your instinct is to wait and see how things turn out, as some industries are subject to financial volatility and issues may resolve themselves. However, it can also be difficult to tell whether your business has a reasonable chance to recover on its own, or if you need help from a pre-insolvency advisor to rescue your company from the challenges it is facing.
Here, Company Insolvency Advice’s experts explain some of the key warning signs that your organisation is facing financial problems, and what you can do in response. It is vital to act quickly in these cases if you want to have the best chance of restoring your business to a good financial position. While you may feel that you should wait until you have considered all your options, this can result in some potential solutions being taken off the table. If your company is facing insolvency, getting help from a professional advisor at the earliest opportunity can make a big difference to its chances of recovery.
The team at Company Insolvency Advice is here to help. We have worked on many cases like yours and can discuss the specifics of your situation to help you understand all of the options that are available. If you need support of any kind to restore your business to a strong financial position, get in touch with our advisors today to learn how we can help. Call us on 0800 999 0666 or use our online enquiry form to request a call back at your convenience.
Why is it important to recruit an insolvency advisor early?
Earlier intervention often provides options for rescuing the business, such as restructuring or negotiating new terms with creditors, that will not be available later down the line. It can help protect company assets and explore ways to maximise returns for creditors, giving you a stronger chance to continue the business.
Demonstrating a proactive approach can instil confidence in creditors, suppliers, and staff, which is also vital to business continuity. In fact, when a company is facing debts it cannot pay, working with creditors is often the only way to resolve the problem. When company directors are proactive in pursuing a solution, this precludes the need for creditors to take action themselves – the results of which can be serious for an insolvent company.
Taking fast action can also help to avoid some of the serious consequences associated with insolvency procedures. Directors may face personal liability for wrongful trading if they knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvency, but advice from a licensed insolvency practitioner or other professional can support you in meeting any legal obligations and avoiding this type of penalty. Earlier intervention often results in lower professional fees and less drastic measures being required, so it can be more cost-effective to restore your business to solvency.
What are the warning signs that companies should contact pre-insolvency practitioners?
There are several indicators that businesses should use to indicate that they may be facing insolvency and should speak to a professional for advice. While the list below is not comprehensive, it offers some warning signs that should inspire you to take action. If your company is facing any of the problems below and you are concerned about its future, contact the team at Company Insolvency Advice for a free initial chat and bespoke advice tailored to your circumstances.
Some of the most common warning signs of financial problems that might encourage company directors to contact pre-insolvency advisors include:
- Cash Flow Issues: If your business consistently struggles to meet its financial obligations and to balance cash flow in and out of the company, you might be facing liquidity problems. The experts at Company Insolvency Advice can talk you through several short and long-term solutions to cash flow challenges, which could return your organisation to good financial standing if they are implemented early enough.
- Late Payments: Frequent delays in settling bills and paying staff salaries may be an early sign that your business is not financially stable.
- Creditor Pressure: If your company’s creditors are constantly chasing payments and you are receiving final notices, this is a red flag. Even if you are able to pay these debts, or you work in a volatile industry, making late payments suggests that there may be structural problems within your business. Contacting our team to discuss insolvency and restructuring your organisation to ensure you always have the cash available to pay your debts can be a vital way to avoid the more serious consequences of insolvency.
- Legal Issues: If you are facing legal action from creditors, ranging from winding-up petitions to county court judgments (CCJs), it is vital to seek professional advice at the earliest opportunity. Even in these cases, it may not be too late to save your business provided you act quickly and make the right moves. Contact the team at Company Insolvency Advice to plan your next steps and receive realistic, practical guidance on the outcomes you can expect in your situation.
- Declining Sales and Revenue, Loss of Key Customers and Contracts: A sudden drop in sales and revenue could mean you will soon face difficulties in maintaining the business. This can also occur if you lose a major client or a significant contract, as this may seriously affect your revenue stream. Sometimes, this situation cannot be avoided – for example, if a customer goes out of business, it is not easy to quickly replace them and the revenue you have lost. However, with sensible advice from a licensed insolvency practitioner, you may be able to take steps to reinforce your company’s resilience to these types of changes.
- Bank Restrictions: If your bank has declined further credit or is tightening your existing credit facilities, this is a red flag and you should work with an insolvency practitioner to determine an appropriate way forward for your company.
Alongside these financial indicators, there are also the personal effects and responses to these challenges that can make them more difficult for companies to deal with. This is another reason that working with a professional advisor can make a big difference to your business’ performance and recovery opportunities. These extra problems include:
- Staff Morale and Productivity: Low morale and declining productivity often accompany financial difficulties and can exacerbate them.
- Shareholder or Director Disputes: Disagreements at a high level about the future direction of the company can result from deeper financial issues and make them more difficult to resolve.
- Personal Stress: Running a business is challenging. If the financial state of the business starts affecting your personal well-being, consider that as a signal too.
Our team understands how difficult it can be for a company director to face debt challenges, as the effects of these problems go far beyond the financial aspects. Managing the emotional side of things and putting on a brave face as you make difficult decisions is one of the most difficult demands that is made of a business owner in these cases. Company Insolvency Advice is here to help, by advising you on the available options and guiding you towards a solution that will take the pressure off your shoulders and resolve the difficulties you are facing.
What solutions will a licensed insolvency practitioner provide?
Each situation demands a different solution, which will produce a different outcome. This is why it is important to work with an advisor who can evaluate the effects of the solutions on offer and help you to choose the one that will work best. There are several outcomes that could apply, depending on the specifics of your situation:
- Company Voluntary Arrangement: This refers to a payment plan agreed between a company and its creditors. When you agree to a Company Voluntary Arrangement, any legal action creditors have taken against your company ceases immediately, and cannot resume as long as you meet the terms of the arrangement. This can be a vital way to pay off your company’s debts and implement a strategy to better manage your cash flow.
- Pre-Pack Administration: This is an arrangement in which the sale of a company is agreed before it goes into administration. As soon as the company is put into administration, the sale is completed. This is often a good way to maximise return for creditors, prevent job losses and maintain continuity of the business under its new company.
- Time to Pay Arrangement: This works in a similar way to a Company Voluntary Arrangement, but applies specifically to HMRC tax debts. It enables debtors to pay back the money they owe over a set period of time, which can give them the space they need to recover.
- Creditors Voluntary Liquidation: This will only apply in the most serious circumstances, and involves agreeing with creditors to close the business down. While this is better than having your company closed through a winding-up order, we will support you to avoid this outcome and rescue your company wherever possible.
For specific advice and solutions tailored to your organisation, contact Company Insolvency Advice today. Call us on 0800 999 0666 today, or use our online enquiry form to arrange a call back at a convenient time for you.