What are the challenges facing businesses?
Some businesses have responded quickly and redesigned themselves for the future following the outbreak of COVID-19 earlier this year. However, many will now be finding themselves in unchartered waters and it could be the first time that they have faced serious difficulties.
Burning through cash reserves or funding that has been secured, while waiting to see how demand returns and the world evolves, or hoping that further support will come from the government, is a dangerous approach.
Unfortunately, there is a risk that this could lead to a wave of business failures as cash piles erode, the debt becomes repayable, the government support comes to an end and enforcement action can again be taken by creditors.
Directors could also come under the spotlight if businesses later fail, despite the Corporate Insolvency and Governance Act providing temporary provisions that prevent directors from being personally liable for wrongful trading. There are also wider legal responsibilities that need to be considered.
How can we help?
These new challenges require collaboration and new thinking,which is why we have been bringing together different specialisms within Smith &Williamson, as well as working with independent turnaround consultants and legal specialists to develop unique and collaborative solutions.
Although no one has a crystal ball, waiting to see what happens is a high-risk strategy and there is a lot that that can be done in the meantime:
1. Thinking differently and collaborating to develop a turnaround plan that empowers management to take positive new actions
Tom Pickering, a turnaround specialist and CEO of the Icebreaker team who we have been working with to create solutions, says “it’s so refreshing and such a privilege to enable executive teams to take actions from a different perspective, get a grip of their situation, identify and restart selling their core business. The outcome is immediate, it’s amazing when faced with a significant challenge to buck the trend, get back to making money and secure great relationships.”
2. Creating more time
We can identify immediate cash and profit improvement initiatives, and we are experienced in managing stakeholders through these difficult situations.
The new moratorium process provided by the Corporate Insolvency and Governance Act 1986 can also protect the business while it delivers the turnaround. However, these are untested and have some complexities, so we have been working to ensure that we are able to implement these quickly if required.
3. Reducing your funding requirement and strengthening the balance sheet
As well as through cash and profit improvement initiatives created in the turnaround plan, it may be also possible to reduce the funding requirement and strengthen the balance sheet through careful negotiations with creditors or if appropriate, formal rescue tools such as a Company Voluntary Arrangement and the new Restructuring Plan.
4. Opening-up options
With a robust plan and more time, more options are opened. We also have a network of specialist funders that can provide funding support in turnaround situations if needed.
We are also working with David Stone, MD of a turnaround boutique, Prompt Business Strategies, who says “We have seen a number of businesses struggling to get new funding because their assumptions about their ‘New Normal’ are too simplistic being based on a historic position that is no longer relevant. In these uncertain times, changing the mindset is really important and all aspects of the business need to be put under the spotlight. Funders want to see a robust turnaround strategy, supported by quality data that demonstrates the key risks and contingency plans, on which to base lending or investment decisions.”
What are the next steps?
If you are experiencing any of these issues, please contact Tim Sloggett confidentially on the details below.
There is no cost for initial conversations, where we will quickly understand your issues, assess the situation and provide immediate feedback on the potential options and next steps.
Tim Sloggett – Partner
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
The tax treatment depends on the individual circumstances of each client and may be subject to change in future.
Notes to editors
Smith & Williamson is a leading financial and professional services firm providing a comprehensive range of investment management, tax, financial advisory and accountancy services to private clients and their business interests. The firm’s c1,800 people operate from a network of 12 offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton. Smith & Williamson is part of The Tilney Smith & Williamson Group.
Smith & Williamson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
© Tilney Smith & Williamson Limited 2020