Pride Before a Fall?
Insolvency Practitioners and Early Action to Address Business Problems. Pride Can Get in the Way
In an article from January 2018, our Insolvency Practitioners looked at the need for businesses in financial distress to take early action to avoid or survive difficulties. In reality, this is easier said than done, as in our experience in our core geographical area of operations – Birmingham and the greater West Midlands – we often come across directors who are too proud to admit that their businesses need help. In other words, it is a psychological issue as much as a financial issue. In this article, we look more deeply into this phenomenon.
The 6 Signs of a Business in Distress
As the ICAEW’s restructuring and insolvency guide confirms, there are six broad areas that are seen as signs that a company is in distress. The first 5 are:
- Cash Flow problems
- High Interest Payments
- Defaulting on bills
- Extended debtor or creditor days
- Falling margins
These 5 are all well known, and if identified early enough, restructuring and recovery work can take place to turn things around without the need for a formal insolvency procedure. However, it is the 6th sign that is harder to quantify, and act upon:
This last sign could equally be called stress, and as in all walks of life, when under stress it is more likely that poor decisions are made, often without taking the appropriate advice. This can make things worse, quickly.
To put this in context, it is interesting to note that our insolvency practitioners often find that when Directors come in to discuss their issues, they sometimes ‘hold back’ on some of the relevant information which can then take a fair amount of time to uncover. In answering the question why does this happen, it is often because the director is stressed and is finding it hard to admit that there is a problem? In other words, it can be a psychological issue, or one of pride.
Once the Psychological problems are overcome, Our Insolvency Practitioners can take action
If a business is in distress, heading towards insolvency, but not actually insolvent, there is a lot an insolvency practitioner can do to help a business, often working in conjunction with the accountant, bank, creditors and HMRC. This might involve working with directors to put together a formal recovery plan and then putting it into action, which is likely to include:
- Dealing with creditor pressure
- Negotiating with HMRC
- Accessing new sources of funding
- Working to reduce slow payments from debtors
- Working on cash flow improvements
Inevitably, these plans can only be implemented effectively if the full picture is made clear to us at as early a stage as possible. In this way, the chances of a successful turnaround are much improved, as are the chances of avoiding a corporate insolvency procedure, such as a Company Voluntary Arrangement, Administration, Receivership or Liquidation.
If Your Company is in Financial Distress, Talk to Our Insolvency Practitioners
Our team of insolvency practitioners and insolvency supervisors are here to help businesses in distress restructure and recover. The quicker we know the full details of what we are dealing with, the faster we can act, and the more likely a successful turnaround can be achieved. Contact us or call us on 0121 200 2962 for a FREE initial consultation.