To avoid wrongful trading accusations, it’s crucial to verify that your struggling business is not insolvent. If the business has entered insolvency, you’re required by law to prioritise the interests of your creditors.
To determine if a failing business is insolvent, you should consider whether you can pay your bills on time or if your balance sheet shows that your liabilities outweigh your assets.
Despite your business’s declining state, there are steps you can take to turn it around. However, it’s important to identify the underlying reasons behind the decline to implement effective solutions.
Determine the reasons behind the failure
It’s possible that the failure of a business has occurred gradually over time, making it almost imperceptible. Conversely, a sudden drop in turnover due to losing a key customer could explain the current situation. By understanding the reasons behind the decline of your business, you can take appropriate steps to turn it around and avoid wasting time on ineffective or unnecessary actions.
Seek guidance from licensed insolvency professionals
Get expert advice at any stage of your business with licensed insolvency support. Seeking advice early on can provide you with a significant advantage when facing financial difficulty. With the help of a licensed insolvency practitioner (IP), you can ensure that you don’t put yourself at risk of wrongful trading, which is a significant issue often overlooked by directors who continue trading with the best intentions.
Explore alternative finance options
Alternative finance options offer businesses the advantage of quick access to funds compared to traditional bank loans and also provide flexibility. The type of alternative finance that is most suitable for a business depends on the industry in which it operates, as well as the type of business.
Asset-based finance, for example, is ideal for businesses that own valuable assets that they don’t want to lose use of. Another alternative funding option is invoice factoring, which helps businesses maintain regular cash flow by injecting funds into the business to help pay bills and build confidence through new financial stability.
HMRC Time to Pay (TTP) arrangement
The Time to Pay (TTP) scheme offered by HM Revenue and Customs is aimed at businesses that are experiencing difficulties in paying their tax bills. Meeting the requirements of the TTP scheme involves providing supporting documentation, such as sales forecasts and cash flow, and ensuring that your business is not insolvent.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a formal agreement that restructures a business’s debt repayments to make them more affordable, allowing the business to trade its way out of financial difficulty. This solution is typically suited to larger companies experiencing short-term financial difficulties. By agreeing to a CVA, the business is protected from legal action by its creditors, as long as it maintains its repayments.
Struggling businesses can benefit from company administration as it provides protection from creditor action and a route to turnaround the business. With the help of an administrator, a plan to exit administration can be established, which may include a CVA or a pre-pack sale. Moreover, selling non-essential assets can generate funds for restructuring, which in turn can encourage recovery and growth.
Creditors’ Voluntary Liquidation (CVL)
Understanding your legal obligations as a company director is crucial if your business is failing. If you’ve exhausted all turnaround options and the business cannot be rescued, a CVL is a legal process that can help fulfil these duties and prevent further financial loss to creditors.
To explore the potential turnaround options for your business, reach out to InsolvencySupport.co.uk. With a nationwide network of offices, we offer a free same-day consultation to help you quickly determine the best course of action.