A business is considered to be insolvent when it is unable to meet its financial obligations. Insolvency can affect firms of any size, from sole traders to multinational organisations.
That a firm is insolvent is not necessarily a sign that the business it runs is unprofitable. Company insolvency can occur because the legal and financial structures have led to poor cash flow, despite the business, or at least part of it, being fundamentally sound.
Insolvency can be the result of weak controls, poor financial decisions or simply losing sight of strategic objectives and becoming too focused on short-term fire fighting. Often it is the result of several factors combining.
Whatever the cause, recovery from company insolvency is possible through business turnaround or rescue. The SFP Group has been recognised as the UK’s fastest growing corporate recovery specialist, helping businesses through demanding restructuring and turnaround situations.
The inability to meet financial obligations as they fall due, such as VAT or PAYE payments or the settlement of supplier invoices, is one the clearest signals of probable company insolvency. The state of the company balance sheet is also an important indicator.
While a cash flow crisis of significant proportions may be the catalyst for restructuring business rescue, it will not be the first sign that there is a problem. A business will be sending out warning signals for weeks, maybe even months. If these are spotted and acted upon quickly, the inconvenience and cost of business recovery can be minimised.
A more obvious sign of cash flow stress within a business is the constant juggling of incoming and outgoing payments, particularly when the payroll is being processed. Ignoring calls from smaller suppliers, chasing invoices and increasingly making and breaking promises to pay are other common indicators.
Looming insolvency also has a human cost, as anxiety and stress rise within both management and treasury teams. This can manifest itself in health issues, which only deepen what seems to be a downward spiral.
With prompt action, the damage arising from insolvency can be limited. If it is left unchecked for too long, business rescue becomes expensive and painful.
The moment a business identifies the risk of insolvency, action should be taken. Acknowledging the potential for commercial harm and dealing with the problem early is better than simply maintaining an optimistic outlook and trusting to chance.
Seeking assistance early gives time to develop the optimum business recovery strategy. Ignoring the situation and later taking action in haste, under the watchful eye of concerned creditors, is likely to produce a less satisfactory outcome.
Business recovery from company insolvency can take varying forms. In the some cases, a creditors’ voluntary liquidation is the most appropriate course of action, particularly if the business is no longer viable and there is no likelihood of raising the funds to pay creditors.
Administration may be an option, getting protection from creditors while a restructure or sale of the business is arranged. Alternatively, a company voluntary arrangement (CVA) could be the answer, allowing the directors to remain in control and trade their way out of trouble in conjunction with restructuring.
At the heart of every business turnaround is access to fresh working capital. Injecting new cash into a revitalised, restructured business is fundamental to the success of any company insolvency solution.
The first step for any business concerned about the risk of insolvency is to engage a corporate turnaround and restructuring recovery specialist, such as the SFP Group. Our expertise, based on years of experience with company insolvencies, allows firms to benefit from the solutions developed for issues that others have faced.
The breadth and mix of our services is unrivalled in the commercial finance sector. Our capability covers independent business reviews, audits, forensic accounting, asset recovery and collection. We also work with a network of funders who provide factoring, invoice discounting and other forms of asset based finance.
The SFP Group was awarded the title Best Business Recovery Specialist at the 2012 Business Moneyfacts Awards, as independent recognition of our achievements in supporting companies through a variety of turnaround and restructuring situations, including insolvency.