The current economic landscape is presenting challenges for many businesses. Our team at Shepherd and Wedderburn is here to help you navigate those challenges.
Adaptability and resilience have never been more important as many businesses are currently facing ongoing challenges, such as:
- supply chain issues, including counterparty insolvency;
- cost increases;
- workforce shortages and other employee related concerns;
- changes in consumer behaviour and the impact of the cost-of-living crisis on consumer confidence;
- cashflow pressures;
- covenant breaches under finance documents;
- increased interest rates; and
- repayment dates under finance facilities approaching.
If your business is facing financial distress, whether as a consequence of one or more of these issues, or for other reasons, understanding your options and reacting quickly are key. While there is no ‘one-size fits all’ approach in the restructuring arena, areas worth considering may include:
- stakeholder management, including negotiation with lenders and other creditors;
- refinancing options/access to funding;
- divestiture options;
- operational restructuring; and
- obtaining advice on directors’ duties and potential liabilities.
Where appropriate, we can draw upon our substantial network of contacts to introduce you to restructuring accountants, insolvency practitioners, M&A advisors, or commercial finance brokers.
Part of our value add, includes collaborating with Care first to provide free access to confidential counselling and other wellbeing services for directors of companies that engage our restructuring and business advisory team. By facilitating access to Care first’s services, we aim to give directors access to the dedicated, expert support they may need to care for themselves, so they are fully equipped, in turn, to look after the needs of their employees and make the best business decisions. Call one of our team for a free initial consultation, in confidence, if you need guidance and reassurance. Early intervention can make a big difference.
Our restructuring and business advisory specialists have provided a list of ten top tips if your business is facing financial distress.
Ten top tips if your business is in distress
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 in engaging with stakeholders. Seek external help with this if required.
2. Have a plan, and have a back-up plan
Understand the key issues faced by the business so that they can be prioritised. For example, are certain areas underperforming as compared to others? Are there particular unprofitable contracts that you would, ideally, like to get out of? Clearly articulating the problems faced will assist in identifying potential solutions and a plan to be actioned. That plan should be critically assessed. Potential hurdles should be identified, along with ways to mitigate and respond to those risks.
3. “Cash is king” - visibility
In turnaround situations, a real time 13-week cash flow, with a daily view for the next two to four weeks 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 cashflow. Examples include:
- stopping discretionary spend;
- postponing capex;
- exploring potential measures in relation to the workforce or operations to make the cost-base more flexible;
- improving processes regarding issuing invoices;
- reviewing whether there is scope to decrease credit terms offered to customers or change the profile of staged payment terms;
- offering early payment discounts (if appropriate) to prioritise cash over profit;
- 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 help 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. This information together with robust financial information and clarity regarding the assets owned by the business, will help expedite the exploration of funding options.
7. Be mindful of your duties as director, and record decision making
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 that the company will go into liquidation or administration, the directors owe a duty to ensure that 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. There are a variety of potential grounds of liability for directors which may arise under the Insolvency Act 1986, the Companies Act 2006, the Company Directors Disqualification Act 1986 and the Finance Act 2020. These include wrongful trading, misfeasance, and potential joint and several liability for certain company tax liabilities. 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. Difficult decisions don’t become easier if they are postponed and any delay may well limit the prospects of a successful business rescue.
10. Look after your own mental wellbeing
It is unquestionable that the emotional pressures associated with running a business facing financial distress can impact on an individual’s mental health and wellbeing. 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.
For more information about what Shepherd and Wedderburn can do to assist you, please contact Fiona McKerrell or Suzanne Knowles.