COMPANY AT RISK OF GOING BUST? DIRECTORS SHOULD TAKE IMMEDIATE ACTION
Company at risk of going bust? directors should take immediate action to address the situation and try to turn the company around.
Michael Tait offers some steps to consider:
Assess the Situation:
Directors should conduct a thorough assessment of the company’s financial position, including cash flow, outstanding debts, and overall financial health. This evaluation will help them understand the severity of the situation and identify the root causes of the financial difficulties.
Develop a Recovery Plan:
Based on the assessment, directors should develop a comprehensive recovery plan. This plan should outline specific strategies and actions to improve the company’s financial position, reduce costs, increase revenue, and enhance overall profitability. It may involve restructuring, downsizing, renegotiating contracts, or diversifying the company’s offerings.
Seek Professional Advice:
Directors should consider seeking professional advice from financial consultants, turnaround specialists, or insolvency practitioners. These experts can provide valuable insights, help assess the viability of the recovery plan, and guide the directors through the necessary steps to avoid insolvency.
Communicate with Stakeholders:
Open and transparent communication is crucial during a financial crisis. Directors should keep key stakeholders informed about the company’s situation, challenges, and the steps being taken to address them. This includes shareholders, employees, customers, suppliers, and lenders. Maintaining their confidence and support can be vital to the company’s recovery efforts.
Cut Costs and Improve Efficiency:
Directors should closely scrutinise the company’s expenses and identify areas where costs can be reduced without significantly impacting operations. This may involve streamlining processes, renegotiating contracts, eliminating nonessential expenses, or implementing cost-saving measures throughout the organisation.
Focus on Cash Flow:
Managing cash flow becomes critical when a company is at risk of going bust. Directors should implement strict cash flow management practices, including closely monitoring cash inflows and outflows, accelerating cash collections, negotiating extended payment terms with suppliers, and prioritising essential payments to maintain the company’s operations.
Explore Funding Options:
If additional funding is required to stabilise the company, directors should explore various funding options. This may involve seeking additional investment, securing loans or credit lines, or pursuing government assistance programs. They should also consider potential equity partners or strategic alliances that could provide financial support or synergistic opportunities.
Renegotiate Debts and Contracts:
Directors should proactively engage with creditors, lenders, and other parties with whom the company has financial obligations. Renegotiating payment terms, restructuring debts, or seeking temporary relief measures can help alleviate immediate financial pressures and provide the company with some breathing space.
Monitor and Review Progress:
Regularly monitoring and reviewing the progress of the recovery plan is crucial. Directors should assess the effectiveness of the implemented strategies, identify any deviations, and make necessary adjustments to stay on track. This iterative process will help ensure the company’s ongoing viability and increase the likelihood of successfully turning the business around.
Consider Insolvency Options as a Last Resort:
If all efforts to rescue the company fail and insolvency becomes inevitable, directors must act responsibly and consider insolvency options such as administration or liquidation. Seeking professional advice is essential in navigating the legal and financial implications of such processes while fulfilling their duties to stakeholders.
It’s important to note that the specific actions and strategies will depend on the unique circumstances of the company, its industry, and the applicable legal frameworks. Seeking professional advice from experts in finance, law, and insolvency is highly recommended to make informed decisions.