Early intervention can prevent insolvency - Business Works
BW brief

Early intervention can prevent insolvency

Simon Plant, Group Partner at SFP Insolvency is an area that is often misunderstood by SMEs and the role of the Insolvency Practitioner (IP) in particular is not usually associated with helping to turn struggling businesses around. Yet more than a third of all cases referred to IPs involve a recovery or turnaround scenario, working with a business to put it back on its feet, protecting its staff and its future. The secret, however, is in acting fast, and calling for help early. Directors need to recognise the warning signs and be proactive in seeking support. Thinking that their difficulties have not been noticed by the bank or other creditors could end up costing dear.

The reasons why early intervention is an advantage are many and varied. Generally, early intervention ends up being considerably more cost-effective. It is tough trying to save your business when problems have been left unresolved or allowed to drift and the closer you are to insolvency, the more you may find yourself paying advisers and turnaround experts. It is completely understandable why a business owner takes the Micawber stance from Dickens' David Copperfield that 'something will turn up', but it usually doesn’t. Most owners only see the folly of their ways when it is already too late.

In up to 90% of turnaround attempts, most of the effort concentrates on financial reconstruction, including debt restructuring to keep the company solvent, often looking at facilities such as invoice finance to make the sales ledger work to that company’s advantage. It is, of course, important to look at all areas of credit control to minimise the impact of late payment and maximise cashflow.

What this does not address, however, are the underlying operational problems that have contributed to the company’s present difficulties and if the operational side of the business is not restructured – and difficult decisions taken early (for example to outsource non-core skills / people), then a collapse may be inevitable. To be most effective, this restructuring is best conducted within a solvent business where cash is still available, preferably in close collaboration with your main creditors. Waiting for your company to hit a cash crisis and for the cash to dry up is too late.

Seeking help early is tough, especially if your company is still winning business and / or turning a small profit, but sticking your head in the sand like the proverbial ostrich is simply not an option. To avoid insolvency, however, companies need to do more than simply think in terms of 'crisis management'. They need to be working, instead, towards profit improvement through a timely operational and financial restructure while they are still solvent. Those are the companies that will survive.

For more information, please contact: www.sfpgroup.com

Tweet article
BW on TwitterBW RSS feed