No matter how well you run your business, there is always a risk of something going wrong. When business owners are faced with either a bad debt, rising costs or an unforeseen event, it is easy to miss the onset of insolvency.
The Covid-19 pandemic has intensified this, with many company directors busy ensuring processes are in place to comply with the ever-changing government guidelines whilst trying to maintain turnover.
It is more important than ever to recognise the ‘signs of trouble’ early and prepare accordingly as survival
can depend on it.
At KBL Advisory, we can help you spot the triggers that could lead to insolvency and advise you on how to plan for the best outcome.
Warning Signs to look out for
• Year on year trading losses.
• Cash flow issues or no headroom in banking facilities.
• Increasing bank debt and question marks over serviceability - a common feature with the Government
rollout of CBILS loans.
• Your bank or lender asking for additional information/security or requesting you seek professional advice.
• A build-up of trade creditor and HMRC arrears.
• Increase in debtor days/bad debts.
• Worsening credit status.
• Adverse action for example, 7-day letters from suppliers or CCJs.
• Bounced payments or the need to negotiate extended payment terms from suppliers.
• Short term unsecured loans (with high interest rates).
Top Tips
Spotting these warning signs early is key. Given the right expert guidance many businesses can adjust quickly, coping with new scenarios and maximising the opportunities presented in challenging times.
With the heightened financial pressure facing companies as a result of Covid-19, here are some top tips owner-managers must consider to survive the pandemic:
1. Don’t bury your head in the sand
Business owners that bury their head in the sand only further increase the probability of insolvency.
Cheap borrowing has supported many UK SMEs through the pandemic, but with government loan repayments due to kick in from Spring ’21 together with protection measures implemented - suspension of winding up orders and commercial lease forfeiture - coming to an end, it’s important for business owners to have a strategy for survival.
Facing up to financial difficulty as soon as you can and talking to a professional advisor early will increase the options available to you and can help you stabilise your company before it is too late.
We are all quick to ring a mechanic should our car start playing up. A director’s attitude towards their business should be no different.
2. Act quickly
Be on the front foot by knowing what to look out for and what steps to take.
Acknowledging difficulties quickly gives business owners more time to react, reducing risk and increasing the chance of a positive alternative to business closure.
Currently, the government support available together with creditors sympathetic attitude to the trading climate has created ‘breathing space’ for many SMEs. Now is the time for directors to think about how they move forward and take readily available advice from a qualified specialist as soon as they spot signs of struggle.
3. Forecasts – equip yourself with reliable financial information
Every business owner needs visibility of the financial movements within their company. Without an in-depth understanding of the figures, it is impossible to know how well the business is really doing.
Having robust trading and cash flow forecasts in place is crucial if you want to avoid insolvency.
This will give you a solid understanding of where the business is heading in the future and therefore it will be better equipped for any potential costs that come with growth and expansion.
Even if your business is excelling and generating large profits, it is vital to keep reliable financial information. Forecasting regularly is an effective tool in planning for both best and worst-case scenarios.
4. Do not fear external advice - business rescue is the priority
There is often a misunderstanding that speaking to an Insolvency Practitioner (IP) for assistance will automatically result in the closure of your business. This is not the case.
When we are asked to advise early, we can usually work with you to implement a practical strategy to return your company to a stable trading position.
Closing your company doesn’t have to mean the end of your business. We can help you to understand your goals and find the best way forward. KBL Advisory are a Northern based independent insolvency practice, supporting SMEs facing financial challenges through a range of business solutions including:
• Cash flow management
• Debt advisory
• Business turnaround
• Corporate restructuring
• Accelerated mergers and acquisitions
• Commercial funding solutions
• Reviewing and benchmarking of current funding facilities
If you or your company are experiencing financial difficulty, it is crucial that you seek expert advice as soon as possible. Hope for the best, plan for the worst, and remember, nothing beats a chat with an expert.