Statistics from 2019 indicate that 60% of the business startups fail in the first three years. Adding on to this COVID’19 has potentially worsened this situation in 2020. It is tough to deal with a failing business. Steady cash flow is the immediate demand for this phase. It is essential to understand the possible challenges that a company may face to adapt strategies to surmount them.
If owners neglect the problems and refrain from taking early actions, the company will eventually face insolvency followed by a complete closure. The directors need to know that insolvency practitioner, along with organizations like HMRC, and Government bodies always provide a helping hand. You can also avail services from insolvency practitioners like going into administration, or CVA.
Read the following article to know about the signs of falling business and various options to tackle this situation.
Reasons behind business failure:
Some reasons for the failure of businesses are:
- Poor organization of the cash flow
- Spending the tax amount on working capital instead of diverting it to HMRC accounts
- Resistance towards change in business strategies that the evolving business trends demand. For example, the British high street shops that resisted to adapt the online shopping options failed to expand their business, especially in the COVID’19 pandemic.
- Lack of business innovations and engaging business schemes
- Credit extension beyond limits
- Thefts and business frauds
Alerts that indicate business failure:
Look out for these signs in your current business to understand that your business is heading towards failure:
- Your business has recurrent outstanding bills/invoices.
- Your customers are stretching the cash flow beyond limits.
- Creditors refuse to finance your business, or you have crossed your overdraft limits.
- Your marketing efforts are giving zero returns.
- High employee turnover rate
- The constant reduction in customer inquiries
- The company becomes insolvent (The situation where the company’s debts have raised to the extent that its assets are not enough to pay them. In such case the company’s trading is banned by the government bodies.)
How to rescue a failing business?
Turning around a failing business is challenging. But it is possible to get out of such daunting circumstances. Here are some tips for the same:
- Compare your business model with your rivals and come up with robust transformations to save your business.
- Think over enhancing the value proposition that you provide to your customers
- Take control of your business in your hands.
- Don’t resist evolution. Make changes that the present situations demand from your business.
- If your clients are not clearing the invoices on time, come up with some discounts on timely payment of invoices.
- Seek the support of your employees and customers.
Prevent your business from being insolvent
Even after getting the red flags for business failure, if you avoid taking actions, you will indeed shut all the doors that can uplift your collapsing business. Hence, before the situations reach the threshold of business failure, go for the following steps:
Get Time-to-pay agreement support from HMRC
If your company has proper financial planning, then you can go for the TTP agreement. You need to justify that the current economic problems are temporary. Further, you need to present a detailed cash flow forecast for your company. And your company will get an extra period of six months to complete all the debts.
Consult an insolvency practitioner
If your business already exists in an insolvent state, then you would surely need to cease trading. In such instances, you can approach licensed insolvency practitioners for uplifting your business from this situation. They will guide you through the best rescue options for your business after a proper assessment. If they feel the need for a voluntary liquidation process for your business, they will supervise the process accordingly.
Shifting the company into administration
If a company goes into administration, an administrator appointed by the insolvency practitioner company will take over the financial management of the company. Your company will be given an eight-week moratorium period during which the administrator will make a rescue plan for the company. All the planning will focus on carrying out the actions in favor of creditors.
You can go for a pre-pack or compulsory administration or a voluntary administration. Before the beginning of a pre-pack administration, the company’s assets are sold to new owners’ off-market’. Following this, the administrator initiates the pre-pack administration by signing off the sales agreements and further rescue procedures.
A voluntary administration is a process where the company’s director voluntarily decides to rescue the company of insolvency.
Don’t waste time when you get the signs of your business failure. Immediately take measures like reaching out to HMRC or insolvency practitioners, shifting the company into administration, or opting for CVA to save your business from getting winding-up petitions.
Disclaimer: “This article is for general information only and full professional advice should be taken before taking any action’’.