Planning to avoid the worst

In my experience, when it comes to tasks you’d rather put off, speaking to an insolvency practitioner about restructuring your business is right up there with a trip to the dentist.

However, as lockdown eases, businesses will be faced with an entirely new set of challenges and planning ahead is essential.

It has undoubtedly been one of the toughest periods in living memory for Scottish businesses. Overnight, thousands of companies that had been perfectly viable found themselves looking over a financial cliff deep enough to induce panic in even the most hard-headed entrepreneur.

Unfortunately, avoiding difficult decisions has only one guaranteed consequence – some businesses will go to the wall unnecessarily. Regrettably, this is a story I see play out all too often, but it doesn’t have to be the case.

Insolvency practitioners are sometimes seen as the undertakers of the corporate world, just burying failed businesses. However, while administrations and liquidations are one inevitable element of our role, we spend almost as much time saving businesses as we do winding them up.

Last month I had a business owner approach me feeling hopeless. She thought her only option was to begin insolvency proceedings. She had reached the stage where she simply couldn’t see how the bills were going to get paid. Cash is king, especially just now, so, together, the first steps were to put out the immediate fires by identifying which suppliers needed paid urgently and where that cash was going to come from.

We helped her prepare a short-term cash flow forecast so that she could consider the timing of her cash coming in and payments she had to make. This meant she could speak to suppliers with confidence and set up payment plans.

Clients have told me how they would lie awake at night worrying about the financial state of their business because they didn’t feel they could talk to anyone. They also said the reality of talking to me was different to how they’d imagined – positive and realistic not doom and gloom.

Now, more than ever before, we need management teams to be proactive if we are to emerge stronger from this downturn. We must work together to do everything we can to save those companies that have a solid future.

I would encourage all directors to remember that, even though times are tough just now, there is always the possibility of a business rescue if you seek specialist advice before your business runs out of cash. Seeking early professional advice to assess the options available and gaining the confidence of your key financial stakeholders could be the difference between life and death for a business. However, like that twinge in your tooth, you need to start dealing with it now or things will only get worse – and much more painful.

Richard Bathgate is a restructuring partner at Johnston Carmichael