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EXPERT VIEW
Why do small businesses get into trouble – and how do they get out of it?
Eamonn Wall Managing Director of Business Rescue Expert businessrescueexpert.co.uk
“Small businesses have faced a headwind of external economic pressures in the past three years, first caused by the pandemic, then the war in Ukraine, resulting in massive energy cost increases and record inflation, the highest interest rates for 15 years and significantly reduced profits for many businesses.
“Although poor management can be a reason why businesses get into serious financial trouble, external economic factors are the major cause of the current record increase in UK company insolvencies.
“What are the classic signs that your business is in trouble? Cash flow. If you’re repeatedly having to ‘rob Peter to pay Paul’, it’s a strong indicator that a serious cash flow problem is brewing. Not being able to pay your staff or tax bill are even more serious indicators. As a short-term fix, many owners reduce their own wages or don’t pay themselves at all, to keep their business afloat. We see that a lot.
“If your business is clearly in trouble, doing nothing isn’t an option. Ignoring a problem often only makes things much worse. Ignoring your creditors can have serious consequences, including the forced closure of your business. The earlier you act, the more options you’re likely to have.
If your business is clearly in trouble, doing nothing isn’t an option. Ignoring a problem often only makes things much worse. Ignoring your creditors can have serious consequences, including the forced closure of your business. The earlier you act, the more options you’re likely to have.
“Every situation is unique, but how early you seek professional advice is a crucial universal factor. You may even be able to solve your difficulties relatively quickly and easily, although that won’t always be the case, of course.
“Business survival has many guises. Most preferably, an informal re-organisation of its debts could enable your business to continue as normal. However, if an otherwise profitable business is being seriously impacted by external factors, to protect jobs, the best route might be formal liquidation and restarting the business.
“Restructuring may provide a solution for some. ‘Informal restructuring’ includes re-organising debt or arranging new loans or funding, while ‘formal restructuring’ refers to using insolvency law to protect the company’s assets, while negotiations are carried out with creditors to repay debts over a more affordable period.
“When the going gets tough, you must be prepared to make difficult decisions. Talking to a business restructuring or insolvency practitioner can really help. Most will offer a free, hour-long advice or consultation session, when you can explain your circumstances and find out about your options. Many practitioners will be business owners themselves, so they’ll appreciate many of the serious challenges that you’re facing at the moment.”