Business Finance: Mark Upton on why dialogue is vital for struggling firms
IT’S been tough for a long time now so does the fact that the anticipated avalanche of insolvencies has not happened mean that key stakeholders in businesses are taking a conciliatory view when dealing with businesses that are facing financial distress?
Certainly I think from a creditor point of view there is now a greater understanding and awareness of the impact of insolvency and, partly through media coverage of high profile insolvencies, what formal insolvency procedures such as administration actually entail. There is therefore a will to find a solution.
However, the old adage “sales are vanity and profit sanity” should be remembered. So, if you are dealing with a financially distressed business it is crucial to ensure that whatever arrangements you may consider entering into, your customer does indeed have the ability to pay.
And what of the banks? With interest rates low many more companies are sustaining their loan repayments but new cash is still very hard to secure. In my view banks are being as supportive as they can be under the current constraints and parameters for new lending.
Whereas it is not realistic to expect banks to be increasing their lending and subsequent exposure to unsustainable businesses, there does need to be a stimulus from somewhere. Many businesses are struggling because of the inability to secure funding.
HMRC continue to take a relatively tough approach and I am seeing increasing instances of them distraining on assets which seriously damage the prospects of a company’s survival. The principal matter that HMRC are looking at is often not the level of old debt but whether it believes the company has the ability to meet its ongoing obligations. If it does not believe the company is viable then HMRC is extremely reluctant to agree to any payment proposals.
Another quarter day has passed and therefore obligations to landlords have been brought into focus. Like HMRC, landlords have the ability to distrain without notice but again dialogue is the key as they would clearly rather have a tenant paying some rent that an empty building on which they will still have to pay business rates.
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The key to all of this, of course, is dialogue, transparency and early recognition of the situation. The best result is always achieved by the taking of early advice.
: : Mark Upton is a partner and business recovery specialist at Ensors Chartered Accountants