Management resource will be increasingly stretched as it seeks to deal with these issues and the financial difficulty they can cause, while also continuing to operate the business. Faced with an economic environment unlike any other in recent years, many businesses may be experiencing financial difficulty for the first time, or perhaps for the first time in a while.

It is important for businesses to understand their finances, options and stakeholders’ needs in order to work with them to implement a successful, sustainable strategy. For company directors and business owners to have confidence (and to provide stakeholders with confidence) that the business can withstand these pressures, they will need robust management information, a well-considered strategy, and potentially specialist support from stakeholders and advisors. 

When dealing with financial difficulty, the stages a business may need to go through to start thriving again include:

1. Take control of the crisis or difficulty and stop the position getting worse;  
2. Talk to stakeholders and get their support;  
3. Make operational and strategic improvements; and 
4. Put in place a suitable capital structure for the go forward business.

The following tips may help you navigate your way through these stages, identify and perhaps mitigate financial stresses early on, and successfully carry out a turnaround.

Understand your cash position

When a business is experiencing or expected to experience financial difficulty, one of the most important and urgent concerns is understanding current and future cashflow and being able to make payments as and when they fall due. 

A reliable 13-week cashflow forecast can help identify and avoid cash issues before they arise, including whether your business may need revised payment terms from customers, suppliers, or creditors; what scope there is to flex payments; whether there is an issue with collections; and how much time there is to find a solution.

Get support early

A key to providing a business with the best chances of returning to financial health and thriving again is understanding the options available – and major stakeholders and specialist advisory firms can support with that.

Early engagement with stakeholders, such as lenders, shareholders, key suppliers, landlords, pension trustees and HMRC, can be essential for the business to fully understand the options available to it, particularly if it requires additional time, funding, or other support.  Lenders are an important stakeholder in any business and many lenders have specialist teams, experienced in working with customers in financial difficulty on a daily basis.

Depending on the situation, it may be appropriate to engage specialist advisors, such as accountants, solicitors, property experts, or insolvency practitioners. The scope of their advice may include reviewing short term cash flow projections and requirements, improving financial reporting, raising capital, managing stakeholders, financial and operational improvements, and understanding and assessing business strategy and options. Legal advice may also support with understanding the position under finance documents, tenancy agreements, articles of association, supplier agreements, and other important documents.

Keep a close eye on the economy

In such an unpredictable environment, it pays to watch economic indicators and world events and try to plan your cashflow and business strategy accordingly. 

Being able to anticipate the effect these events and trends will have on your business and on the economy as a whole will give you the opportunity to adapt early to changing economic, market, and trading environments.

Get to grips with the Ts & Cs of directorship

Finally, each director must act in accordance with their duties and be mindful of the potential liabilities that they may face in the event the business’s financial difficulties cannot be resolved and the company enters an insolvency process in the future. 

This can be a complicated area and directors may benefit from specialist legal advice to protect their own position.

Get in touch

Every situation will be different and the things you will need to think about will depend on the specific circumstances of your business. The points above are a starting point and an idea of the support that may be available, but if you’re interested in discussing this article further then please speak with your Lombard representative or contact us here.

Written by NatWest Group Restructuring