The stats are in and the picture isn’t rosy; four in ten small business fail within five years. It’s a fact of life – not every venture is going to be a big success. Having said that, financial problems don’t have to spell the end of yours. Company turnaround comes in many different forms to suit an array of different circumstances.

Cash flow problems

Cash flow problems can occur through numerous setbacks; is often unpredictable, and if ignored, can lead to the winding-up of a company. It might be a big contract your business has lost, or maybe you took on more staff than you currently need because predicted business growth hasn’t transpired. Maybe you just have a lot of cash tied up in book debt. Whatever the situation, a company facing these struggles will start to fall behind on paying their debts when they fall due, thus running the risk of insolvency.

The first step in turning around your business is identifying the underlying cause and addressing it. So, for example, if you are employing more staff than the company can support, steps need to be taken to either look to reduce the workforce or build up the business to a level where it is sustainable. To tackle the financial problems – there are several options to consider, including…

Financing through the storm

If you have cash tied up in unpaid invoices, which is restricting your spending power and your ability to pay off your own debts, then a factoring facility may be what you need. This type of commercial financing is essentially selling your unpaid invoices to a factoring company, who will then give you a percentage of their worth so you can get on with day-to-day business. These arrangements are easily tailored to specific industries and businesses, so whether you want to chase your book debt yourself or let your factoring company do that for you, these are all options on the table.

Formal arrangements

If the debt is more serious than a simple matter of delayed invoice payments, a formal repayment plan might be a better option for your company.
Sometimes, company arrears amount to HMRC debt only – in this case, a Time to Pay arrangement could allow you to get back on top of Corporation Tax, PAYE, NI, and VAT arrears.
If your business is a limited company, then a company voluntary arrangement (CVA) is another possible option. This would allow you to condense your business debts into one affordable monthly repayment, extended over a period of around 5 years, with the remaining balance of liabilities written off at the end. Similar products exist if you are a sole trader or member of a partnership.

Pre-packs and the technicalities

Sometimes, accumulated historical company debt can be so substantial that the business just isn’t viable in its current state any longer. In this case, the directors have an obligation not to continue trading if it is to the detriment of creditors, and the company would need to be liquidated.

A liquidator would sell assets at market value and distribute any proceeds amongst creditors. The shareholders of the old company may have the opportunity to purchase the assets from the liquidator at market value, they could essentially continue the business within a brand-new company. The ‘phoenix company’ would need a new name, however. This way, although the old company would have to end, a new one could continue the business in a debt-free format.