Insolvency statistics make sober reading at the moment, confirming what everyone in business already knows – things are tough out there, and seemingly still on a downward trend.
The latest official figures available for Q2 2023 show that company insolvencies were up 9% from the previous quarter, and 13% year-on-year. In June, the number of insolvencies recorded was up 27% on the same month in 2022.
Companies don’t become insolvent overnight. Getting to a position where you no longer have the liquidity in the business to cover operating costs usually comes as the result of a sustained period of poor performance.
Insolvent companies can, of course, recover. But the chances of success are much, much better if action is taken before things reach such a critical stage. With the COVID-19 pandemic and the sluggish economic environment that has followed it, thousands of businesses have seen performance dip over what is now an extended period of time.
Sitting tight and waiting for better times is a dangerous game. There comes a point where decline starts to gather its own momentum and snowball out of control. The best way to reverse a decline is to be proactive and act early. Corporate Recovery starts with acknowledging that your business is in perilous waters. The sooner you act, the better your chances of turning things around.
If your accounts are giving you cause for concern, don’t leave anything to chance. Seek expert advice about putting your business on a recovery footing.
Here are some of the options available for turning performance around.
Driving cost efficiencies
Many struggling businesses find they have costs that are disproportionate to their turnover. This is very common at a time when companies are being hit from both ends by rising inflation and deflated sales. Margin calculations made three or four years ago are unlikely to be relevant to current trading conditions.
Bringing down expenditure so it is lower than revenue will of course return a business to profitability. However, achieving sustainable cost efficiencies can often require substantial restructuring of a business.
Reorganising cash flow
One of the most common reasons businesses find themselves at risk of insolvency is that the flow of money into the business falls out of sync with the flow out. In short, if you spend faster than money comes in, you eventually find there’s not enough money in the accounts to pay bills.
This can happen despite the overall performance of the business still being in reasonably good shape. For B2B businesses, payment terms are often an issue, with long waits for invoices to be settled hurting cash flow. Bringing incomings and outgoings back into alignment can require negotiation with both clients and suppliers. But it is also about effective monitoring, establishing a degree of stability and predictability in what comes in and what goes out, and having contingencies in place (such as cash reserves and lines of credit) should you face unexpected costs.
Renegotiating debt
Speaking of lines of credit and renegotiating, one of the most common reasons companies get into financial difficulties is an excessive debt burden. This can come about because of an over-reliance on credit to address both cash flow and expenditure issues, so care has to be taken in how credit it used. But a lot of businesses have also been hurt by the steady rise in interest rates in recent times, with the rising cost of debt just another inflationary pressure they can ill afford.
Being unable to make debt repayments is a major cause of insolvency. Should your business still be trading healthily, it’s often in creditors’ interests to agree to renegotiate repayments, say over a longer term, rather than risk the business becoming insolvent and potentially facing liquidation. Or you could look at refinancing options, which involve taking out new loans to pay off existing debts, but on more favourable payment terms.
Improving revenue streams
Finally, an obvious way to lift a business out of difficulties is to boost its revenues. There are several ways this can be achieved, from looking at pricing strategy (e.g. would selling more at a lower price give you better turnover and profits?), to looking to diversify into new markets, or by branching out with new products and services.
Speak to an expert
To find out more about our Corporate Recovery services, request a call back below or call 0203 086 8677.
