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27 Apr 2021

My company is in financial distress—how can Worrells help?


5 min

Early action can save your company!

We meet with directors daily to discuss their company’s financial position. Frustratingly, we often find ourselves meeting with the directors when it is too late to save the business. Had the directors approached us earlier, there may have been other options available to save the business. We see two most common reasons as to why people come to us too late:

  1. The directors believe things will get better—which generally they won’t unless there is a fundamental change to their business.

  2. By meeting with an insolvency practitioner the business will simply be closed.

This article demonstrates that by meeting with Worrells does not mean a formal insolvency appointment is the only outcome, or necessarily the company’s end. In fact, we believe we can offer options previously not considered or realised that may well ensure the business’s long-term viability.

The key steps that any director should take if they are concerned about their company’s financial position are summarised below.

  1. Don’t put your head in the sand

The most important course of action for any director is not to “put their head in the sand”. It is critical that directors identify the problems early to allow them to react swiftly and decisively. Such proactive action could mean the difference between surviving or not. Ignoring the problem will almost seal the company’s fate.

  1. Meet with your advisor

An early—proactive—meeting with your advisor enables a review of the company’s position with a specialist who understands the true company position. Your advisor knows you and your business and has the appropriate skills to assist you to understand the financial position. It might actually be better than you think. If this review identifies financial distress, the next steps are crucial. In the first instance, with your advisor, you should seek advice from an insolvency expert like those at Worrells.

  1. Meet with Worrells

A meeting with Worrells is not undertaken with the purpose of putting the company into any form of immediate insolvency appointment. These meetings are intended to conduct a detailed review of the company’s financial position (and/or the director or any individual in the personal insolvency space) to determine what options may be available to the company. To properly assess the company’s financial position the following tasks will typically be undertaken:

  • Review the financial accounts. Particularly the Profit and Loss and Balance Sheet. Any liquidity issues, either short term or long term will be quickly identified.

  • Review an updated cash-flow forecast. This is important to understand the business’s future working capital requirements and whether the company can generate sufficient cash flow to meet those requirements.

  • Review the ageing and collectability of any customer accounts.

  • Review the ageing and quantum of the outstanding creditors.

  • Review the tax position.

  • Review the position in relation to any finance debt to bankers or other financiers.

  • Review the business’s customer base and revenue line to determine if any improvements can be made.

  • Review the company’s direct and indirect costs to determine if any changes can be made to improve the business’s profitability.

  • Review the company’s HR position to ensure that it is appropriately resourced, and importantly not over-resourced.

  • Review the business’s long-term viability.

The above are the basic elements; there are many other issues that may well be reviewed and discussed.

Again, the meeting’s purpose is to identify the options available to the director. This may or may not involve an formal insolvency process.

It may be determined the company’s underlying financial position is okay, but it may have short-term liquidity issues. In such a scenario, it is likely a formal insolvency appointment is not needed and the Worrells partners can connect the director to other contacts in our Worrells Community network that may be able to assist the business going forward. These include:

  • Financiers—cash-flow finance, debtor factoring, trade finance etc.

  • Business Brokers—assist with a sale of the business.

  • Accountants—good quality accountants who provide sound advice.

  • Lawyers—assist in any disputes between the company or related parties.

  • Private Equity Funders—assist with funding options.

  • And many more.

If it is determined that the company’s financial position is more serious and some pro-active action must be taken, a number of options will be discussed.

If the stressed financial position is identified early enough, it may be possible to consider options with the desired outcome: restructuring the business into a stronger profitable position. Action can then be taken to seek a moratorium from the old creditors to have their debt paid overtime from future profits. This is typically done through either a Small Business Restructure or a Deed of Company Arrangement formal appointment. The result is that the business survives and in fact is usually much stronger for the future.

If proactive action is not taken early enough, or the position is dire, we provide advice as to the other options available, which could involve putting the company into liquidation.

What is most critical to ensure the best possible outcome is to act early. If the directors are worried, they should immediately seek advice from their trusted advisors to determine if the situation is as bad as they fear—it may not be!

The teams at Worrells are always available at no cost to meet and discuss the options outlined above to ensure that any director is armed with all the information necessary to make a fully informed decision that is right for them and their company.

Related article: What to expect in meeting with an insolvency practitioner


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