Can your business be turned around?

If your business is looking unprofitable, consider your options and seek expert advice if necessary.

If the coronavirus pandemic has caused your business some issues, attempting to get things back on track will mean taking a long, hard look at how you’re trading.

One of the most important questions to ask is, “Without this debt, would the business be profitable?” For an answer, you may need to seek advice from the experts. Fortunately, there are various places you can find such expert guidance.

Read on to learn more about turning your business finances around, and where to go if you need support.

Questions to ask yourself

Tom Straw, partner at insolvency practitioner Moorfields Advisory, recommends that any business struggling with debt asks itself the following questions:

Are you confident that, long-term, your business will return to how it was before COVID-19? Or, that your projections are conservative enough to be reliable in informing your business decisions?

While businesses in the retail and hospitality sectors may experience a short-term resurgence, it remains difficult to predict the outlook for these sectors over the medium term.

Are your business’ structure and staffing levels appropriate for the long term?

Furlough will give you some flexibility until September 2021, when the scheme is set to end. But you may need to make difficult decisions around recruitment and redundancy in the lead up to this date.

And some sectors – such as hospitality – are experiencing a shortage of staff as they reopen and struggle to fulfil capacity.

Do you have a clear picture of your liabilities, and a detailed and realistic cash flow forecast showing how you’ll repay them?

Your business may have built up rent arrears due to:

If you do have a shortfall in your working capital, how will you bridge it?

Decisions around working capital are inherently more risky during the pandemic as you may find it more difficult to gain quick access to extra funding.

Signs that your business might be failing

There are many warning signs that a business might be failing. Here are some key ones to look out for:

  • You feel under constant financial pressure
  • You aren’t receiving as many customer enquiries as you once did
  • People or businesses who owe you money aren’t paying bills on time
  • Staff turnover has increased
  • You’re always at the limit of your overdraft

Learn more about the importance of managing cashflow through times of change and growth.

Expert advice: why it’s important

Free advice on tackling business debt is available from a number of sources.

You can also seek the advice of your lawyer or accountant (if you have one), although turning a struggling business around demands a specific set of skills.

Restructuring and insolvency specialists

These professionals are often able to advise on more than just terminal situations. They are typically very experienced in areas that can help turn around your business, such as:

Tom Straw, partner at insolvency practitioner Moorfields Advisory, recommends that businesses get advice as early as possible. Doing so can also protect directors from risks around wrongful trading.

A wider range of rescue and recovery options will be available to you, including negotiating with creditors informally on your behalf. This is often more beneficial as it allows you to maintain relationships. Approximately 75% of businesses that undertake a company voluntary arrangement (CVA) or time to pay arrangement (TTP) go on to be successful. Insolvency costs can vary depending on the circumstances of each individual case, but smaller businesses need to remember the cost is a one-off payment and usually a lot less than they imagine. Tom Straw partner at insolvency practitioner Moorfields Advisory

An option to consider is using an insolvency practitioner, as Julie Palmer, partner at Begbies Traynor, explains:

If your business is struggling to service its outgoings – whether as a direct result of the coronavirus crisis or due to existing pressures – or if you’re concerned as to how viable your business is going forward, an insolvency practitioner can help you understand your current position and the options open to you. That can include a wide range of options, such as funding, buy-outs or CVAs. There’s also the Fast Track CVA, which functions as an accelerated version of a standard CVA, providing the same level of long-term stability and certainty for companies and creditors alike, all achieved within a quicker time period and requiring less professional intervention. Julie Palmer partner at Begbies Traynor

Lowering overheads

If your business is seeking to reduce its overheads, you may benefit from speaking to:

  • property advisors – on renegotiating rent and leases
  • employment experts – on redundancy or recruitment planning

Learn more about what options you have if you can’t afford to pay your business rent.

Case study: Moorfields Advisory

Moorfields Advisory assisted a recruitment company that had a £6 million turnover but was struggling with cash flow issues, £300,000 in arrears with HM Revenue & Customs (HMRC), and a deferred consideration from business purchase of £3.5m.

The insolvency practitioner:

  • supported the company in producing integrated forecasts
  • helped managers gain a more detailed understanding of the business’ finances and their workings
  • identified options to ease working capital

Following Moorfields’ intervention, the recruitment company:

  • agreed a 12-month time to pay (TTP) arrangement with HMRC
  • negotiated an injection of funds from shareholders to cover the shortfall in cash flow
  • recruited an interim financial director to bring financial management in-house

As a result of taking these steps, the company went on to grow successfully.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Making business finance work for you

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.

Read the guide to making business finance work for you

Your previously read articles