27th October 2020
Daniel Booth comments for North West Business Insider feature – Deals: Insolvency or recovery – The self-diagnosis guide
Covid-19 has hit businesses in a way that no-one could have imagined. As we prepare for a much different winter, the government’s decision to give SMEs some much needed breathing space is welcome – with an extension of insolvency measures to protect businesses by giving them more time to consider a rescue plan.
Over the last 25 years, we’ve worked with thousands of companies in every conceivable predicament. Yes, the times we now find ourselves in are unprecedented. However, the principles we’ve always adhered to when working to rescue a business remain the same.
Spotting the warning signs early is always key. Fortunately, under the right specialist guidance, many SMEs are agile enough to quickly adapt and deal with new scenarios and to capitalise on new opportunities that present themselves. Here’s how:
1. Don’t bury your head and hope problems will go away. They tend not to
It’s very easy for an owner-manager to fall into the “hoping for the best” trap, as the alternative is too terrible to contemplate. Sadly, it is this reaction that is most likely to lead to the failure of their business.
It’s essential to take stock of where they are, what’s happening in their market, bringing the senior team together to strategically pull together what’s been learnt so far and how they must adapt.
This should be done when problems are first recognised and then at regular, ideally monthly, intervals moving forwards.
Even if a formal insolvency process becomes necessary, it doesn’t always mean the end of the road.
2. Act quickly
By knowing what to look out for – and what steps to then take – a business has more time to react. The longer it takes to acknowledge difficulties, the quicker they accelerate and more problematic they become. Often, by the time debts are unable to be repaid, options are very limited.
We recommend that companies use the Government’s extended deadlines to their advantage and benefit from the extra time to get a plan in place – rather than waiting until the last minute in weeks and months to come.
We also meet with many business owners who, when they really think about it, don’t want to rebuild their business. For many, they recognise that it wasn’t particularly viable prior to the pandemic. Others find themselves at a life stage where starting back from scratch isn’t what they want to do. We often ask business owners what ‘good’ looks like for them and we formulate a plan from there.
Even at the later stages, distress doesn’t mean disaster. From time to time, we are all faced with a situation or posed a question that we don’t know the answer to. By working with specialists, however, you’re best placed to find a solution.
3. Ask for help
We shouldn’t be afraid to ask for help as without it, we don’t – and often can’t – succeed.
UK businesses have borrowed over £50billion under government-backed lending programmes since March. One in four firms that took on debt through state lending programs say they may have to scale down operations to repay it, with one in five stating that profits only just cover their debt interest payments.
Times are clearly very tough for many businesses, but again a greater proportion of them can certainly be saved if issues are taken on board and specialist advice sought earlier.
4. Don’t be afraid of the insolvency process – rescue is always the priority
Confusion surrounding the insolvency process – and fear of repercussions from seeking advice from a corporate recovery professional – means that many owner managers often leave it too late to get help. There is a misperception that asking an Insolvency Practitioner (IP) for guidance will automatically lead to the closure of the business.
On the contrary, our priority – and that of all restructuring firms – is always to try to save it if possible. Where we are referred early enough, we can usually develop a practical strategy to put the company back on a steady footing.