One solution in dealing with a downturn in business is to trade through. This may be suitable if the business is cyclical or you anticipate that the downturn will be short term.
The longer term view must be of a viable and profitable business. It may be possible to avoid formal insolvency procedures such as administration, company voluntary arrangements or liquidation.
Continuing to operate the business if successful may retain key contracts and clients who could look elsewhere if a formal insolvency procedure were proposed. Furthermore you may retain the confidence of funders and key suppliers enabling the business to return to profitability.
At all times the directors should be aware of their fiduciary duties and ensure that any actions or decisions undertaken by them are not considered as fraudulent or wrongful trading.
If you haven’t already done so it is important to formulate a business plan. This will include options available to reduce costs and increase sales thus maintaining cash flow.
Some additional areas to consider include:
- Review alternative sources of funding such as factoring or discounting
- Possible debt restructuring with current funders
- Dialogue with creditors and extend payment terms where possible