It’s a challenging time for small businesses right now; 2020 has certainly not got off to a promising start.
If you are the director of a company, you are likely quite concerned about the year ahead. To help you tackle potential issues, here is some general advice from Hudson Weir Insolvency Practitioners for business survival in 2020.
Manage cash flow
Keeping a healthy cash flow is vital to business survival. Your company must have a short-term weekly cash flow forecast so you can keep a heads up about significant outgoings in the coming weeks that may affect your business if you are not making as much money or are already in debt.
Decisions will need to be made about where savings can be made. Consider switching to a different supplier or asking your current supplier for a deferred payment plan. If you rent a property, can you ask your landlord for a pause on the rent while this crisis is ongoing?
Contact your bank to see what the latest developments are and how you can get support from them, such as an overdraft extension.
Take a close look at all of your outgoings and make some tough choices about where to cut expenses. Reduce, defer or cut; these are your options for non-essential expenses.
It can be challenging to plan during difficult times, especially if your business is falling into debt. However, you will need to look into your company’s existing processes and decide how you can alter them and find new ways of working that can save you money.
If not already done so, senior members of staff should be brought together to devise a rapid response to changing circumstances and update the methods of working to prevent a dwindling cash flow, all while keeping in line with government guidelines.
You will need to be flexible; you may end up doing things in innovative ways that you’ve never done before.
Keep staff informed
In times of crisis, complete transparency with your team is a must. You need to keep your staff informed of any measures taken by management to alter the way you work or any changes to processes that might affect their job.
If you are facing a severe cash-flow shortage, drastic action may have to be taken such as whether you are going to keep all your staff on the payroll, whether they will continue employment or have their hours reduced.
If you are struggling to pay your creditors, the best course of action is to contact them first before your payment deadline.
You can try to reach an informal repayment agreement for your debt. While they may not agree, they would likely rather give you more time to pay than spend time and money pursuing legal action. It’s an option worth exploring before things get worse.
Reconstruct the business
Similar to changing business processes to find places where your cash flow can be bumped up or prevented from falling further, your entire business may need to be reconstructed to adapt to the changes.
It could be that you need to look at staffing levels, search for more financially sound outsourcing opportunities, move into more affordable premises or renegotiate existing contracts.
By going into administration, you effectively hand control of your company over to a licensed insolvency practitioner who will act as administrator. During this time, your creditors cannot take legal action against you to recover their debts without the permission of the court.
Your insolvency practitioner will draw up a proposal to restore your company’s viability and repay your creditors. However, if it is not possible to save the business, they will sell it as a going concern to improve the creditors’ return. One option for business rescue is to enter into a Company Voluntary Arrangement (CVA).
Enter into a CVA
If your debts are growing out of control and you cannot find a way to pay them by their deadlines, you may need to consider insolvency options like entering into a CVA.
A CVA is a formal agreement between your company and your creditors that allows you to pay off your debt, in full or just in part, over an agreed, more manageable period. A CVA can last up to around five years and will need to be agreed upon by at least 75% of your creditors who attend the proposal meeting for it to be accepted.
Your insolvency practitioner is responsible for contacting your creditors and arranging the meeting. If the proposal passes, they also become responsible for collecting payment of the debts and distributing it out to your creditors.
The advantage of a CVA is that your company cannot be wound up by creditors, you are protected from any legal action so long as you are paying what you agreed in the CVA.
During this tumultuous time, you may need to make some difficult business decisions. If you have been affected by the upheaval and your debts are spiralling, you can turn to an insolvency practitioner for sound advice and support.
More from ByteStart
ByteStart is packed with help and tips on all aspects of funding your business. Check out some of our most popular guides;
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- A Start-Up’s Guide to the Seed Enterprise Investment Scheme (SEIS)
- 5 Ways to Unlock Finance for Your Startup
- What to Do When the Bank Says “NO”