Don’t be afraid to seek help to weather the financial storm - Ainslie Benzie

How can businesses navigate through challenging financial times? It’s a perfect storm right now, but there are steps to identify and address key issues within your business.

Why is it so tough for businesses right now?

Businesses are still recovering from the challenges that came with Covid, and now face rising interest rates, high inflation, increased fuel prices, and labour and supply chain issues following Brexit. The reality hits when you consider that Scotland recorded a 150 per cent increase in liquidations in 2022 compared to 2019.

Is your business under financial strain?

Ainslie Benzie is Legal Director, TLT LLP

The first thing any business should do is assess its current financial position and prospective cash flow. This is particularly important for limited companies because directors have statutory duties which will change if the company is (or might be) insolvent.

Common red flags include:

• the relevant sector experiencing distress;
• suppliers failing;
• non-payment or delayed payment by debtors;
• unexpected resignations or low staff morale;
• cash flow issues;
• dips in profit margins;
• cost increases.

The business or its financial advisers should prepare and regularly review cash flow forecasts and statements of affairs. This information should be consulted before any decisions are made to incur further credit. If there is any question about the business’s financial position, carry out a business review.

Which areas of your business are experiencing strain?

A review of the business can help identify strengths and weaknesses, as well as opportunities and threats. Ask yourself:

• How can these be exploited or improved?
• Are there any non-performing parts of the business which could be separated out?
• Are any parts of the business performing better than others?
• Should you consider closing down any non-performing parts?
• Would the sale of any assets assist with cash flow?
• How would such a sale impact the ongoing viability of the remaining business?

Ideally, boards should take professional advice when developing a restructuring or turnaround strategy. Once a strategy has been agreed, the implementation should be regularly monitored.

What funding options are available?

Your review may identify a need for further funding. There are more lenders in the Scottish market now than during the last financial downturn. Greater competition means businesses have greater choice. Additionally, new laws will give Scottish businesses the option to secure new borrowing against moveable assets, modernising lending in Scotland. Although unlikely to be available until 2024, this is a change to be aware of and discuss with your lender or business adviser.

Businesses could also consider whether debt for equity structures or director/shareholder loans are viable in their specific circumstances.

How do you communicate with creditors?

It’s not always appropriate or possible to obtain new lending. Thankfully, lenders are increasingly willing to support customers through challenging times. Most lenders have specialised teams of managers with vast experience in this area. Businesses should not be afraid to reach out and leverage that experience.

Creditors may also be open to discussing extending payment terms/amounts. The reality of these challenging times is that most businesses are suffering the same issues, allowing us a rare opportunity to work collaboratively to find solutions.

Similarly, if the business has tax arrears, HMRC may be open to agreeing a ‘time to pay’ arrangement.

Where can you get more help?

It’s critical that businesses take professional advice as soon as possible. All of the above requires careful consideration and may not be appropriate in some circumstances. Taking advice from appropriately qualified advisers gives businesses the best chance of successfully navigating these difficult times.

​Ainslie Benzie is Legal Director, TLT LLP