Is your company or a customer under financial pressure?
Rod Butcher of Butcher Woods Corporate Recovery in Birmingham has over 40 years experience of recovery and insolvency procedures across all sectors including Garden Centres.
He offers advice to companies who are facing financial stress and to suppliers who fear a customer is a bad debt risk.
For the Company Potentially Facing Financial Issues
A company facing financial issues should always maintain up-to-date, financial information concerning financial performance. Gut feel can easily be replaced by taking the eye off the ball.
- If you consider turnover is falling or costs are rising, produce management accounts in a timely manner, not months after a period end. They could show worries are unjustified or are worse than feared.
- Are the problems temporary, Seasonal or something more serious? Plan a way forward, don't just hope for an increase in footfall/average spend to come to your rescue without having a reason to do so.
- Ensure cash flow and profit forecasts are prepared and updated regularly. Depending on the depth of the problem, weekly forecasts should be a minimum and daily forecasts are a great tool and not excessive. Try and anticipate problems, not just react to them.
- Consider stock levels. Are they too high? Are they realistic? Is too much obsolete? There's little point keeping high stock figures in management accounts if completely obsolete just to maintain a healthy balance sheet. Be realistic.
Take advice at an early stage
Take advice at an early stage from appropriate professionals e.g. your own accountant or an Insolvency Practitioner. Accountants/Insolvency Practitioners are not magicians. Approaching them at an early stage gives them more tools they can use. There is not much they can do if you call them only when you have a Bailiff at the door.
Consider whether you have a realistic prospect of avoiding an insolvency procedure and as importantly, minute or document those reasons. Insolvency Practitioners have a tool called “hindsight“, in reviewing directors conduct and therefore it is important to be able to evidence key decisions.
- Consider approaches to other shakeholders in the business: Shareholders, Bankers, other Financial Institutions or Key Customers and Significant suppliers.
- They may be able to provide support via additional finance or by allowing holidays on existing commitments.
- Consider approaching HMRC to seek Time to Pay Agreements.
The problem maybe more serious
These options however will only alleviate cash problems in the short term and if the company is unable to return to profitability, the problem maybe more serious. In which case...
- Can the business be sold? Identify and approach potential buyers. No point in waiting till it’s too late.
- If a buyer can’t be found and closure becomes inevitable, is there a good or a least worst time to close, ensuring any returns to creditors are maximised and not worsened.
- Most of the “nasties“ in the Insolvency Act revolve around a point in time when a person using their own skills or those of reasonable person should have been aware that the company is insolvent.
Insolvency is when you are unable to pay debts as and when due, notwithstanding, you may have a positive balance sheet.
At this point in time, the interests of creditors take precedence over shareholders.
Ensure if you are continuing to trade, you know why and have a plan. It may not work, but be able to justify the decision.
Don't
- make payments to parties in preference to others,
- repay personal loans/guaranteed debts in preference to others,
- sell assets in a fire sale without getting professional advice first.
In addition to potentially leading to claims against you personally, it maybe conduct which leads to Disqualification proceedings.
Do's
Once again, get advice at an early stage.
DON’T BE AN OSTRICH
For the Supplier:
For suppliers who are worried about the financial stability of a customer, these are some actions that should start alarm bells ringing.
Look out for:
- delays in payments,
- round sum payments,
- irrational purchase requirements in particular, exceptionally high/low purchases given the time of year,
- changes in control/management.
Seek to engage with customer. Does their story make sense?
May not be much you can do, but:
- Are you insured? Do you need to notify any of the above? What is the potential effect of this on the customer if cover is removed.
- Have you got a valid Retention of Tile Claim over goods supplied? Are there any goods there? Would you want them back? Normally it’s worth a visit to get a feel for what may been going on.
- Do you have any third-party security? Guarantees?
- Is legal action going to be timely/worthwhile?
- Take appropriate advice.
Doing nothing or just shouting rarely achieves results.