Ten top tips that could help your ailing business - Fiona McKerrell & Suzanne Knowles
1. Ensure your financial information is robust, up-to-date, and complete: This will help in understanding the nature and extent of issues, assessing the options and engaging with stakeholders. Seek external help with this if required.
2. Have a plan, and a backup plan: Understand the key issues faced by the business so they can be prioritised. Clearly articulating the problems faced will assist in identifying potential solutions and a plan to be actioned. Identify potential hurdles and ways to mitigate and respond to those risks.
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Hide Ad3. “Cash is king” - visibility: In turnaround situations, a real-time 13-week cash flow is helpful in providing visibility, identifying critical points and when actions need to be taken. Downside scenarios should also be modelled, and assumptions should be reviewed on an ongoing basis to react to the most up-to-date information.
4. “Cash is still king” – where cashflow is an issue, look at all options for improving the immediate cash position. It is worth exploring whether there are other measures that can be taken to enhance cash flow. Examples include:
- stopping discretionary spend;
- postponing capex;
- exploring potential measures in relation to the workforce or operations to make the cost base more flexible;
- reviewing whether there is scope to decrease credit terms offered to customers or change the profile of staged payment terms;
- negotiating with suppliers or other contractual counterparties for extended payment terms;
- proactively chasing overdue debts and seeking external help with this if required; and
- using support initiatives, such as HMRC’s time-to-pay arrangement scheme, to extend payment terms.
5. Engage with key stakeholders to find consensual solutions where possible: Having good-quality financial information and realistic, robust proposals will hep with these conversations.
6. Consider funding options: Whether it is investment from shareholders, additional funding from an incumbent lender, additional loans, refinancing options, or some other form of funding that is being considered, clarity as to the funding requirement is the starting point for assessing the funding options.
7. Be mindful of your duties as director: The usual duties of directors of a company continue to apply where the company faces financial stress or distress. However, where a company is insolvent, or bordering on insolvency, or where it is probable it will go into liquidation or administration, the directors owe a duty to ensure the interests of the company's creditors are protected and that they act in the best interests of the creditors. A breach of a director’s duties can lead to them incurring personal liability and/or disqualification from acting as a director. Taking legal advice can help directors understand and navigate these risks.
8. Take professional advice: Engaging restructuring lawyers and/or restructuring accountants can be invaluable in preparing and implementing a turnaround or restructuring plan and in mitigating risk of personal liability for directors.
9. Act quickly: The earlier steps are taken to address challenges, the more options are likely to be available and the greater the chances are of success.
10. Look after your own mental wellbeing: It is unquestionable that the emotional pressures associated with running a business facing financial distress can impact an individual’s mental health and well-being. To be as well placed as possible to make the right decisions for your business, you need to be aware of your own mental wellbeing.
Fiona McKerrell is a Partner, Shepherd and Wedderburn. Suzanne Knowles, Director in the Restructuring and Business Advisory team, also contributed to this article.