Many previously profitable companies, and indeed lots of those that were already struggling due to Brexit, are finding themselves in unexpectedly difficult situations. As the restrictions caused by Covid-19 and the impact felt by them continue more and more businesses are faced with difficult decisions.

Below are some steps you should take if your business is facing financial difficulties:

  1. Seek advice

One of the first steps you should take if you are concerned about the financial situation of your business is to take advice.

Your accountant is often a good person to start with, lawyers, HR professionals and other advisors may also be able to provide useful input into your situation.

  1. Consider your director duties

As a director of a company you must always consider your director’s duties. Broadly you must ensure that you act in the best interests of the company at all times and consider the employees, creditors, customers and suppliers when doing so. Ordinarily when a company is facing potential insolvency the directors must then first and foremost look to reduce the loss to the company’s creditors. Since the enactment of the Corporate Insolvency and Governance Act 2020 this emphasis has since been relaxed slightly to enable businesses to continue to trade.

  1. Mitigate the impact

You should do what you can to mitigate the impact, although it is expected that wrongful trading laws will be suspended for several months during the pandemic it would not be wise to ignore them altogether. If it is possible to do so, ringfence money paid by customers for orders not yet fulfilled to protect it in the event the worst were to happen. 

  1. Take action

Not taking action will result in the situation getting worse. Though it may be uncomfortable it could save your business in the long term.

  1. So what are your options?

Consider how you can free up much needed cash now. If you haven’t already, review your overheads to see whether there are any non-essential services that can be cut or whether you are paying for service that you are not currently using. Make sure you are on top of your credit control.

Consider whether invoice financing would work for your business or whether it would be possible to ask creditors to swap their loans for equity your business. Are there shareholders who can inject further funds by subscribing for more shares?

Do not write off the idea of a sale. You might not get the price you would have expected prior to Covid-19 but it could be a way to reclaim some money for you and your creditors.

Remember that insolvency proceedings are an option. There are a number of options available to you here including administration (click here for further information) and liquidation. Liquation is the most severe of the two options where the assets of the company are “liquidated” to provide some return for creditors whereas administration will attempt to save the business.