Most business failures do not come out of nowhere.
By the time a director is considering whether they need insolvency advice, the warning signs have often been present for months. The issue is rarely a sudden collapse. More often, it is a gradual deterioration in cashflow, profitability, working capital or creditor pressure that directors hope will improve with time.
Sometimes it does.
Often it doesn't.
What I see regularly is not businesses failing because there were no options available. They fail because the available options disappeared while decisions were postponed.
Directors Are Usually Closer To The Problem Than Anyone ElseDirectors tend to know when something is wrong long before creditors, lenders or advisers do. They notice that supplier balances are creeping up. They know HMRC is not being paid on time. They see cash reserves reducing every month. They are aware that forecasts only work if a number of optimistic assumptions all fall into place.
The difficulty is that directors are often focused on solving the problem rather than stepping back and assessing whether the strategy itself remains viable.
It is understandable. Every successful business owner has overcome challenges before. Persistence is often what made them successful in the first place. However, persistence and optimism are not the same as a recovery plan.
A Rescue Becomes Harder The Longer It Is DelayedMany directors assume that speaking to an insolvency practitioner marks the end of the road. In reality, much of my time is spent discussing ways to avoid formal insolvency.
That may involve:
The earlier these discussions take place, the more options generally exist.
Once wages cannot be paid, key suppliers have stopped supplying, HMRC is commencing enforcement action and lenders have lost confidence, the range of potential solutions narrows significantly.
Many businesses that encounter difficulties are still profitable on paper. The issue is cash. Growth consumes cash. Large projects consume cash. Slow-paying customers consume cash. Unexpected tax liabilities consume cash. A business can have a healthy order book and still face serious financial pressure if working capital requirements exceed available funding.
This is why cashflow forecasts are often more important than historic accounts when assessing a company's position. The question is not whether a business made money last year. The question is whether it can meet its liabilities over the coming weeks and months.
Professional Advice Should Not Be Reserved For EmergenciesOne of the biggest misconceptions is that professional advice only becomes relevant once a business has reached a crisis point. Accountants, lenders, lawyers and insolvency practitioners all have different perspectives and networks that can assist businesses facing challenges.
In many situations, a short conversation can help directors sense-check their thinking, identify risks they may have overlooked and understand what options are realistically available. Seeking advice does not commit a director to any particular course of action. It simply provides more information upon which decisions can be made.
Final ThoughtsMost business problems are easier to solve when they are small. That applies to cashflow pressure, creditor issues, funding requirements and operational challenges.
The businesses that achieve the best outcomes are rarely those that never encounter difficulties. They are often the businesses whose directors recognise problems early and address them before their options become limited.
The hardest conversation is usually the first one. Fortunately, it is also the conversation that often creates the widest range of possible solutions.
I advise business owners, directors and their advisers on restructuring, insolvency and business recovery matters.
