- 12 Oct
Business Turnaround Finance
Many UK businesses go through periods where they have difficulties which can lead to stress and sleepless nights for the Directors or business owners. In most cases those challenges can be overcome and a turnaround is possible. Getting the right business turnaround finance in place, is often a key part of the rescue plan.
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Planning A Business Rescue
The first step is normally to produce a rescue plan. We have produced a comprehensive turnaround guide which gives suggestions on how to identify the issues that need to be tackled, and it lists a wide range of corrective actions that you, or a corporate turnaround specialist, could take to rescue your company.
Business Turnaround Finance
This article focuses on the finance aspect of that rescue plan. In some situations it may be that other funding options are available e.g. the directors or investors injecting funds, but I am going to assume that those avenues are not available and so the business needs to consider using a financier.
Cash flow is often a critical issue for struggling businesses. There are a number of factors that can create problems e.g. falling sales, rising costs or problems getting paid by customers. When a business suffers cash flow problems it can result in pressure from trade creditors, or HMRC (for unpaid taxes). Dealing with those types of problems can be very stressful and can take the director's focus away from tackling the underlying problems to save the company. Often what is needed is some breathing space.
Business turnaround finance can create that breathing space. It is an injection of working capital that allows the company to remove some of the pressure from creditors, so the directors or owners can focus on solving the underlying problems that resulted in the crisis.
The other use of this type of finance can be to restructure current borrowings. This can be useful where the company is under pressure to meet the current repayment schedule for existing forms of finance such as loans. For example, if you have a business loan that requires substantial monthly repayments, an alternative form of funding may enable you to pay off some or all of the loan and reduce your monthly outgoings.
Availability Of Finance
When a company is doing well, finance is often easy to arrange. However, when a company undergoes a difficult period, the results of that period can limit the options that will be available. Traditional forms of funding such as loans and overdrafts may not be available. If the company has poor financial accounts, defaults or has accrued CCJs from suppliers it can mean that some banks are not interested in assisting the company. However, there are lenders that specialise in turnaournd funding for businesses and there are financial products that can still be made available, even if there is a poor trading history or evidence of creditor pressure.
Factoring is one type of facility that can be made available to almost all companies (that raise credit invoices to other business customers), regardless of their financial circumstances. The service works on the strength of the company's debtor book, rather than the financial strength of the company itself. Therefore, even companies with creditor pressure, CCJs or even those in a CVA (Creditor's Voluntary Arrangement) can qualify.
Not all providers of factoring will help struggling companies, but there are a wide range of funders that do specialise in turnaround situations. In simple terms, factoring unlocks the cash that is tied up in your unpaid sales invoices so that its available for immediate use - you don't have to wait for customers to pay. This accelerates your cash flow and can be part of the rescue plan for a struggling company.
Acquiring A Struggling Business
If you are acquiring a struggling business, specialist finance for acquisitions can help you make the payments to acquire the business, and it can also smooth out the target organisation's cash flow as described above as part of your business turnaround plan.