Comment: Face the future with realistic optimism

Pre-solvency advice can help businesses avoid financial difficulty. Picture: John Devlin
Pre-solvency advice can help businesses avoid financial difficulty. Picture: John Devlin
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TAKE business advice to avoid problems, says Tim Cooper

With levels of business distress at a record low and business confidence having rallied of late, it might seem strange to raise corporate insolvency as a topic worthy of discussion. But as most farmers will tell you, it’s always best to make hay while the sun is shining; especially when that kind of forward planning can save businesses and jobs.

Last year, two out of five formal insolvencies ended in business rescue – that equates to 230,000 jobs saved and 6,700 businesses still operating and contributing to the economy (according to the R3 Report Why Insolvency Matters:

R3, the insolvency trade body, also reports that, a further 3,700 businesses – employing circa 310,000 people – were helped by informal advice from the insolvency profession.

Contrary to popular perception, insolvency practitioners focus primarily on rescuing businesses and preserving livelihoods, not making redundancies. Instead of playing the role of the Grim Reaper, a corporate insolvency practitioner will try to help save the viable parts of a business first, or salvage what is possible for its creditors, including funders, suppliers and employees.

It is this skill to understand its genuine prognosis which gives corporate insolvency practitioners a unique insight into true business health; as well as how best to protect it in future or get it back on track as quickly as possible. In this way, practitioners are using their knowledge and experience of insolvency, to assist in business restructuring – sometimes through “informal advice” without the business necessarily going through any formal insolvency process.

Insolvency is not all about permanent financial failure either. Pre-solvency advice can help businesses avoid financial difficulty while, under the right circumstances, certain insolvency procedures can help businesses resolve debt issues and restructure themselves for a stronger chance of survival. The key is in realising the lessons to be learned before they are too late.

Insolvency practitioners are often only consulted when a business is in an immediate crisis, when options are limited and closure may result. Warning signs of distress are likely to have arisen some time before, and an earlier summons might have meant a different result. Pre-insolvency advice might include options such as restructuring to reduce costs, maximising assets to enhance turnover, improving debt collections to generate cash flow, or reworking finance options and strategy to turnaround business fortunes. There is an increasingly wide and diverse range of finance products available in the market, and financial restructuring (using asset based lending, for example) might even play a major part in your particular business’s remedy.

Corporate insolvency is a profession focused on finding solutions to business problems.

It is prudent to tap into this expertise the moment the smallest alarm bells ring; even moderate cash flow problems can predict a coming storm. There might be a more efficient way of structuring things to reduce aged debt and improve collections, for example. There might also be options and solutions you’ve never considered. And, there could even be parties interested in helping out a pre-distressed business by buying a stake in it.

These options might only be uncovered to you when you take the proactive step of engaging an insolvency practitioner, or a “restructuring professional”, to assess your business’s fitness.

Also, consider how changes in interest rates will affect your bottom line. Even though corporate insolvencies have dropped significantly since their most recent peak in 2009, there are still thousands of businesses who are just scraping along by paying only the interest on their loans.

If you’re concerned that a hike in the rate will affect your ability to meet your obligations, get advice now so that you can weather the storm later.

As a profession, the UK’s insolvency regime offers one of the highest rates of returns to creditors in the world, returning money more quickly and cheaply than its equivalents in America, Germany and France.

Consider tapping into this expertise while business confidence is high, and distress is low – it could mean a much brighter future for your business. As Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure.”

• Tim Cooper is a partner at HBJ Gateley