By Rachel Grant
R3 - Rescue, Recovery and Renewal
With the current economic crisis, an increase of business failure is unfortunately inevitable.
Not all businesses are viable, especially in the face of increased economic pressure.
But there is also a contingent of businesses which were performing well but have been crippled by today's economic realities. Don't let your company go past the point of no return.
Insolvency expert Rachel Grant shares her top 10 tips for business survival.
1. Have a formal business plan
Prepare a business plan and update it regularly. The plan should detail the desired direction of the business and set out milestones showing how this is to be achieved.
2. Know where your business is and control where it is going
Be sure you know the current financial position of your business and that you control it so that it goes in the desired direction:
• Prepare forecasts for at least the year ahead and update these monthly at least
• Prepare monthly management accounts
Next, review actual versus forecast every month, taking corrective action where necessary with key personnel
3. Spread your risk
Do not place too much reliance on one customer or supplier. It's important that your business is not reliant on the welfare of another. It's also important to think about the wider supply chain. Who do you rely on? What are the potential risks?
4. Know your market
Now, more than ever, it is important to ensure that you have fully researched your marketplace, so that your products and services are properly priced and marketed. It can be a brutal process, but think about whether your business is really viable right now, whether it will be in the future.
5. Never forget that cash is king
Invoice promptly. Have a clear credit control procedure, detailing exactly how problem customers should be dealt with. Do not vary the procedure for well-known customers. Consider referring long overdue debts to external debt collectors on a "no collection, no fee" basis.
Credit-check all new customers and regularly review any credit limits that are given. Examine, and if necessary negotiate, new credit terms for your customers on a regular basis.
6. Consider alternative sources of finance
In the wake of the banking crisis, alternative funding has become more popular. An example is asset-based lending can be used to turn assets into cash if funding is a problem. Cash may be able to be advanced against debtor invoices as well as assets such as plant, machinery and stocks. However, the lending criteria are more stringent and there is certainly more re-finance activity as opposed to new lending, making the sale and leaseback model popular.
7. Use retention of title effectively
If suitable, include a retention of title ("ROT") clause in your trading terms. Ensure the clause has been drafted by a solicitor, giving you maximum protection.
If a customer enters an insolvency procedure, attend the customer's premises as soon as possible to schedule and agree the goods over which you assert ROT so that you can register your proprietary claim. The appointed insolvency practitioner will then assess your claim and will, if valid, either return your goods or will (if they have been sold) account to you for the proceeds or part of the proceeds.
8. Do not sit back if an insolvency of a customer occurs
If you are owed money, notify the appointed insolvency practitioner of your claim as soon as possible to ensure you are given an opportunity to lodge a proof debt, attend and vote at any meetings and ultimately receive any dividend that is payable.
Do consider trading with the insolvency practitioner if the business continues to trade and suitable terms can be agreed.
9. Consider an informal arrangement with creditors
An informal arrangement with your creditors may be possible if you approach them early enough and explain that the company has cash flow problems and that you may want to seek deferment of payments.
In order to do this it will be necessary to provide an action plan that is credible especially if there are significant levels of Crown Debt, for example significant arrears of PAYE and VAT.
The government's Pre-Budget Report unveiled the HMRC Business Payment Support Service, which will allow businesses in temporary financial difficulty to pay their HMRC tax bills on an affordable timetable.
10. Take professional advice early
Finally, take professional advice from a licensed Insolvency Practitioner early or a specialist insolvency lawyer if you think you are heading towards insolvency, with a view to safeguarding your creditors' position and avoiding personal liability.
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