It’s never a popular subject but the ‘r’ word has been mentioned on both sides of the Atlantic in recent weeks.

Whether we are heading for recession or not, the highly competitive nature and fast pace of modern business means that financial distress is never far away for many a business, regardless of economic cycles.

As the UK market leader in volume of appointments, Begbies Traynor sees financial hardship across many sectors, regularly assisting directors, their accountants and other professional advisers through the restructuring maze. We operate in a rescue culture geared to support the struggling company, especially since the Enterprise Act was launched in 2003. Acts of misconduct aside, the stigma of failure has largely been removed and directors are encouraged to learn from their experience and try again.

The entrepreneur is optimistic by nature, often running at 100mph on a wave of positivity. In good times it is still important to focus on both sides of the P&L rather than just sales which can mean cash being stretched and struggling to cope with volume at the expense of margin. In this respect, a strong FD performs a vital role, acting as the necessary financial brake to allow the entrepreneurial accelerator to hit the floor wherever possible. At the smaller end, the external accountant steps into this role as trusted advisor to a portfolio of clients.

Despite such support, it can often be lonely at the top and no more so than when things go wrong! As with physical illness, early detection maximises the options available and the chances of recovery. Prevention is of course better than cure and catastrophic mistakes are best avoided. The good FD/adviser should be able to support a client with the right expansion plan whilst guiding another gently away from the cliff edge.

Even the best laid plans can come unstuck or be derailed by unforeseen events, such as BSE, while businesses can be hit at any time from any angle with the loss of a major customer, key employee or supplier, bad debt, legislative change, competitor attack, large contract going wrong or macro-economic factors . Others may simply find themselves in gradual long term decline and devoid of the ideas and energy to reverse things. In such circumstances, specialist advice from a restructuring and insolvency expert will be required. An initial consultation is free so there is little to lose, even if just to provide peace of mind.

Historically, Insolvency Practitioners were fond of citing poor management as the main reason for business failure. Whilst it can obviously be a factor, this seems trite and particularly harsh in today’s fast moving environment. Operating in the world of hindsight means we have a good understanding of the pitfalls but this does not blind us to the skill and courage it takes to set up a business in the first place and be out there battling on a daily basis. Where criticism does begin to bite is in failing to react to events, seek advice or act upon it once received.

While the terms ‘restructuring’, ‘CVA’, ‘pre-pack’, ‘liquidation’ and ‘administration’ will be familiar to many, a little knowledge is a dangerous thing and one missing piece of the information jigsaw can distort the picture completely. Various options can be considered concurrently, with plan B or C held in reserve depending on how things pan out. For example, the potential CVA may fail, but the business subsequently salvaged through a pre-pack Administration, which is usually preferable to closure for creditors and other stakeholders.

A final word of caution: restructuring typically comes at a cost and may require additional finance to be raised – a scarce resource under the circumstances. There is generally only one bite at restructuring and there are few things more frustrating than to meet the directors after the bird has flown, knowing that so much more could have been done just a few months earlier.

So, as always, the mantra is clear. Take advice early and consider all options as quickly as possible, monitoring the position whilst events unfold and variables become clearer. Finally, be prepared to take immediate and incisive action if required.

For a free, no obligation consultation,
please contact:

Thomas McKay or Simon Watson
T: 01224 619 354

Adam Southard or Ken Pattullo
T: 0131 222 9060

Ken Pattullo
T: 01382 313 600

Kenny Craig or Thomas McKay
T: 0141 222 2230

Thomas McKay or Simon Watson
T: 0146 364 2851