Published on 16 September 2010 by Tony Groom

There are a number of options for companies who find themselves in financial difficulties, but a real challenge is finding someone to help.

It’s made more difficult if the directors/owners take the view that they know their business better than anyone else and infer from this that if they don’t know the solution, then no one else will.

A second issue is trying to solve the situation alone, via a self-help route.  It may be that research has revealed a number of options and in a situation of financial difficulty there is a temptation to latch onto the cheapest or first solution. Indeed, you are likely to think you can’t afford help and as a result persuade yourself that the cheap solution is the right one. It is no surprise that a lot of companies fail having not sought any advice.

In either situation eventually a squeeze on cash flow or pressure from creditors tends to be the catalyst that galvanises action and you are likely to start looking for a solution.

Who do you turn to for help when feeling as boxed in as this?  What’s needed is a business rescue adviser, but how do you go about the process of finding one from among the insolvency, turnaround, accounting and consultancy advisers?

Finding business rescue advisers is difficult.  It requires a thorough vetting process to confirm they have suitable experience and offer a rescue process rather than selling only one rescue solution.

The rescue process should involve a thorough business review to identify a viable business that can emerge from the process, then developing and implementing an operational reorganisation and financial restructuring plan. One aspect of the financial restructuring plan will be how to deal with all the company’s liabilities.

In addition to bank and trade creditors a key creditor is likely to be the HMRC (Her Majesty’s Customs and Excise).

Too often companies are advised to enter a Time to Pay arrangement with the HMRC to deal with tax, VAT or PAYE arrears or to enter a Company Voluntary Agreement (CVA) to deal with debts without a realistic assessment of the other demands on the company’s cash.

The first thing to find out, therefore, is whether the adviser is selling something or has a vested interest in the company pursuing a particular solution. Having established they are truly independent, the adviser will conduct a review to establish the core issues. This should involve looking at more than just the financial problems.

After carrying out a thorough review the rescue adviser’s processes should include developing a realistic forecast which pulls together the results of its investigation, including a business plan and updated accounts.

It should demonstrate an understanding of where business is going to come from, ie what is going to drive sales towards the company, as well as how the company makes a profit out of servicing them.

It should also demonstrate a real understanding of the strengths and weaknesses of the business and be able to identify the right restructuring tools to support the business.

If the business in trouble is seeking help at a fairly late stage, for example as a result of receiving notice of a winding up petition in the High Court, and the business rescue adviser’s review has established that the business is viable despite its current financial problems, the adviser should also demonstrate experience of the High Court processes to be able to obtain an adjournment that provides sufficient time to come up with a restructuring plan.

While it is possible to come to the rescue of a struggling business even at a late stage, the advice is to talk to the Revenue or creditors before they file a winding-up petition. There are a number of options for dealing with HMRC liabilities even if you can’t pay.

Either way, support from business rescue advisers with broad commercial experience, not just insolvency, will help manage the process while at the same time helping find a realistic solution.

The important thing is that they will work with you as part of the team and in the interests of helping a viable business to survive in difficult times