Help, my business is going under, what do I do?

If you find yourself uttering these words then you have taken the first important step to a possible solution by simply recognising the fact.

Approaching problems in business is no different from any other aspect of life. If you don’t face up to them it is unlikely you’ll be able to sort them out. A failing business creates an emotional atmosphere and decisions are often made on the hoof. In this respect it makes complete sense to approach a professional in the turnaround and recovery industry who will help to give an impartial view and weigh up the options for you without the distraction of heartstrings.

Help yourself

For many small business owners however, calling in the professionals is often a frightening proposition and seen as the final act in possibly losing everything they have worked for. Of course it doesn’t have to be like that at all but if your business is running out of money you need to know why. And once you have identified the cause you need to be able to reverse the situation or minimise the fallout otherwise the decision to call in the professionals could be taken out of your hands completely.

Protect what’s yours

The most worrying aspect for business owners facing a financial crisis, and understandably so, comes if personal assets are on the line for outstanding debts. This makes ˈfronting upˈ to the situation even more vital because procrastination could have an effect on the value of assets within the business that would normally cover any borrowing.

Although banks and other funders do often take personal guarantees and charges over property the majority of them would much rather recover their money from the business in the event of failure. In a lot of cases, guarantees are requested as a way of obtaining some personal commitment to the venture and this is especially so when minimal capital has been invested by the owner. In a way they are saying "so you want us to swallow your business plan and invest our money, but where’s the pain in it for you should it go wrong?"

It is also fair to say that a business owner with a personal guarantee on the line is likely to stick around and assist in the recovery process.

Having said all that, don’t think that a personal guarantee won’t be enforced if all other avenues of recovery have been exhausted. Facing up to the issues early however can help reduce the reliance on one.

Think clearly

The maths are simple; businesses run out of money because they constantly spend more than they receive. And if the problem can’t be overcome immediately it is possible to get a tighter hold on outgoings to allow some breathing space.

A Creditors Voluntary Arrangement (CVA) might be worth considering but you will have to convince an insolvency practitioner, along with 75% of your creditors, that your business does have a viable future.

Gain some time

If successful however it will allow you time to pay, backed up by a legally binding agreement, without the fear of further creditor action. As well as giving you breathing space this time should be used constructively to rectify those aspects of the business that caused the problems in the first place.

For any business owner worried about facing up to their creditors in this way it is worth remembering one thing; this “debt consolidation” type arrangement is likely to be more attractive to those you owe money to than the alternative which would almost certainly see them getting close to nothing.

Save the good bits and start again

If nothing else, a trip down the insolvency route does provide a short, sharp lesson on what works and what doesn’t work as far as making a success of a business goes. With that thought in mind it is not surprising that many people make a success at their second attempt.

For businesses staring down the barrel of crippling debt then the process of Administration is a well-trodden and much reported path. Administered properly though, it can shed the burden of unmanageable debt whilst retaining core parts of a business to live another day. As well as having a more streamlined model going forward, the continuity generated can also help smooth out some of the kinks attached to the former business.

For example, if the majority of the funding in a failed company was based on the sales ledger, a reasonably seamless transition should help a bank recover its position. After all, a customer is more likely to pay the old company debt swiftly if its on-going supplies suffer little or no disruption. And if the funding was subject to a personal guarantee, that has to be good news.

Share the burden

It can be a lonely life running a business and even lonelier when things go wrong. In this respect the support and advice of someone in the turnaround industry is essential if you want to achieve a clear and professional approach to a delicate situation.

The important thing is to be open and honest with all concerned because silence and illusiveness only causes already edgy people to press the panic button. And if that happens you might lose any control you could have had over the outcome.

For reliable, positive and impartial advice about your business challenges, contact Mike Grieshaber.