Some of the latest economic statistics doing the rounds make for reading as grim as the winter weather. None more so than the figures highlighting just how many UK businesses have found themselves in serious financial difficulty over the past 12 months.
It’s a trend affecting companies large and small. In 2023, the total number of company insolvencies in the UK reached 30,199, up 52% compared to 2021. Ironically, the end of the COVID-19 pandemic can at least in part be blamed, because the various support packages designed to protect businesses through lockdown have also ended. Other factors like high inflation on energy and materials, and high interest rates pushing up the cost of debt, have also played their part.
While insolvency disproportionately affects SMEs, large publicly listed corporations are not immune to the testing times. According to the latest data from EY Parthenon, 18.2% of UK-listed companies issued profit warnings in 2023, a higher proportion than during the banking crisis of 2008.
The story these figures tell is stark – the financial risks facing UK businesses are getting worse. But finding yourself in choppy waters doesn’t have to mean you have to resign yourself to sinking beneath the waves. With the right proactive approach and the right support, most businesses can find a way to turn themselves around.
In these kinds of situations, expertise is critical. Our Corporate Recovery team specialises in identifying and addressing the financial, operational and strategic challenges that cause financial distress. The interventions they offer are tried and tested, helping businesses not only survive but thrive in the long term.
Here are six ways corporate recovery can ensure your business doesn’t become another statistic.
Some of the most common reasons businesses fail include running into cash flow problems which mean they cannot pay their bills on time, and struggling to pay their debts because of rising interest liabilities. Escaping the kind of downward spiral this causes, with higher debt burdens exacerbating cash flow problems and vice versa, can feel impossible.
The solution lies in financial restructuring. By aligning liabilities with revenue coming into the business, restructuring aims to make sure there is always liquidity available to cover overheads. This often includes renegotiating terms with creditors to make debt burdens more manageable.
Some of the root causes of financial stress can be found in inefficient operations or outdated business models. Corporate recovery services will aim to identify where efficiency gains can be made by streamlining processes, optimizing the supply chain, or implementing cost-cutting measures, all with the aim of making the business more resilient in the long term.
As mentioned, corporate recovery aims at more than just survival. Returning a struggling business to long-term, sustainable growth and profitability is the ultimate goal. But to get there, you have to first stop the bleeding and stabilise. Turnaround strategy is about aligning short-term measures like insolvency protection and financial restructuring with more long-term operational and strategic changes, so everything aligns in the right way to maximise the chances of success.
Financial trouble hits everyone connected with a business hard. Employees, customers, suppliers, investors, shareholders and creditors are all affected. Maintaining good relationships with all of these stakeholders is crucial. A big part of corporate recovery is not just the nuts and bolts of how you turn around a company’s financial performance, but how you pull everyone together to ensure it can happen. From negotiating with creditors to maintaining trust among employees and customers, clear communication and building consensus are essential.
Finally, there are legal and compliance implications of falling into financial difficulty. For example, declaring a business insolvent is in itself a legal process. Any company that enters insolvency in the UK has a licensed insolvency practitioner (IPs) appointed to work with it.
IPs have the option of trying to lead the business through recovery via formal, legally defined processes such as Administration or by seeking Company Voluntary Arrangements (CVAs) with creditors to restructure finances. If no successful rescue plan can be put in place, IPs will also manage companies through liquidation.
Our corporate recovery team are all experienced licensed IPs with expert knowledge of the legal and regulatory ramifications of insolvency.