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Business survival. How businesses and accountants can collaborate to succeed.

Traditionally many company owners and directors of solid, financially secure businesses turned to their accountant, in the main, for compliance. To make sure they met their statutory obligations to the relevant authorities (think payments to HMRC, filing to Companies House, etc. You know the drill.).

On top of that, they would rely on their accountant’s knowledge of changes to tax and other legislation so that they were able to reduce their liabilities and maximise their profits and, of course, stay on the right side of the law.

Post-pandemic, they’re going to need more. Going forward, accountants will have to become a trusted advisor, using their expertise and experience to secure business survival for company owners and directors.

  1. Changing relationships
  2. There may be trouble ahead
  3. Corporate Insolvency and Governance Act 2020
  4. Conclusion 

Changing relationships

The move towards advisory is not a new development. 

In recent years, many accountants have taken on a more advisory role with their clients. Technological developments and increasingly sophisticated software have taken much of the ‘drudge’ out of accountancy, subsuming the paperwork and freeing up the accountant to focus on other areas such as business development and strategy.

Now it’s a matter of business survival.

Businesses have been protected from insolvency over the past year by a raft of government measures including furlough, grants and loans, and changes to the insolvency rules. But with the government’s initiatives coming to an end, there may be trouble ahead.

Eddie Williams, a partner at PwC in Birmingham, who is also chair of the Midlands branch of insolvency trade body R3, said: “The economic damage caused by the pandemic is only now starting to be revealed, as Government support has postponed, rather than prevented, the true picture being reflected in rising insolvency levels.”

Offering business survival advice may well take some accountants out of their comfort zone. It will certainly mean extra work, be it formal training, attending conferences and seminars or even just reading around the subject. There is no substitute for hands on experience.

Partnering with an established business rescue specialist is an option for company owners, directors and accountants alike. These specialists have years of experience of working with distressed companies and are experts in creating bespoke solutions for companies in financial difficulty. 

Many accountants will have links with a variety of partners they will be happy to recommend.

Whatever the path there are some essential areas to look at along the way that could impact business survival. Areas that company owners and directors might traditionally have organized themselves.

These include:

  • business planning (crucial for the 12 months ahead).
  • monitoring and controlling spending.
  • credit control.
  • tax planning.
  • reviewing budgets.
  • recommending and implementing software.
  • sourcing finance, including any relevant grant or loan schemes.
  • sourcing credit.
  • planning marketing or social media campaigns.
  • keeping abreast of developments in its business sector.

There may be trouble ahead

Of course, before a company owner or director can start to create a 12-month business plan, they must ascertain the situation the business is in.

Carry out a mini audit to establish where the business stands. The crucial factors for business survival are:

  • what money it has in the bank.
  • what it’s owed by customers.
  • debts to suppliers.
  • finance houses, banks and other sources.
  • outstanding obligations to staff (i.e. salaries, 0pensions and potential redundancy costs).
  • outstanding obligations to HMRC.
  • what’s in its order book.

This analysis will determine how healthy the business is – and whether business survival is possible.

However, there’s one crucial metric to consider: to mangle an old expression, cash flow is king. In a survey of accountants carried out at the tail end of 2020, 67% of them cited cash flow as the biggest concern for their clients.

The importance of an accurate cash-flow forecast cannot be overstated. Remember, a business that on paper makes a profit can still go under if cash flow is poor. 

If you’re a company director or business owner who’s not familiar with creating your own cash-flow forecast, we’ve created a handy cash-flow guide to give you practical guidance on this process.

Being open and honest is vital during this mini-audit process. That way, when the 12-month business plan is implemented there are no nasty surprises. Nasty surprises that could potentially affect business survival.

Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020 (CIGA 2020) was passed in June 2020. It introduced eight measures, some permanent, intended to give struggling businesses a lifeline during the pandemic.

The permanent insolvency measures are:

The introduction of Restructuring Plans, these are designed to help viable companies struggling with debt to restructure this debt and so give them a long-term future. In short, a Restructuring Plan is an arrangement between the company and its creditors for the repayment of debt. It may be proposed by the company or its creditors or shareholders. The court will approve a Restructuring Plan if it considers it to be ‘fair and equitable’. The big difference between this and the previous regime is that while creditors still get to vote on the plan, the court has the power to impose it, even on dissenting creditors.

A moratorium from insolvency proceedings, giving companies a breathing space in which to pursue a rescue or restructuring plan. During this time creditors are not allowed to take action against the company without permission of the court. The moratorium is overseen by a licensed insolvency practitioner but responsibility for the day-to-day running of the company remains with the directors. 

Note: temporary modifications to the new (permanent) moratorium procedure have been extended until 30 September 2021. Temporarily, a company may enter a moratorium if they have been subject to an insolvency procedure in the previous 12 months.

Some of the temporary measures introduced under the Act that were due to expire in March 2021 have been extended to further help business survival. They include: 

The suspension of the presentation of winding-up petitions has been extended to 30 June 2021. This means (until at least 30 June) no winding-up petitions can be presented unless the creditor has reasonable grounds for believing that coronavirus has not had a financial effect on the company. Or the situation that the company is in would have happened even if the pandemic had not had a financial effect on it.

The suspension of the wrongful trading rules until 30 June 2021. Wrongful trading happens when directors of firms continue to trade when they know, or ought to know, that their company is insolvent.

The temporary measure prohibiting suppliers from ending contracts because the company they supply enters into an insolvency procedure has been extended to 30 June 2021. There are exemptions for smaller suppliers.

It’s important to note that despite the measures outlined above company directors must comply with their regular responsibilities and duties that the law demands. Directors should continue to run their companies with the interests of stakeholders, including creditors, in mind.

Conclusion

As the economy and wider society begin to open up, so Government support will taper off as the various business protection schemes come to an end.

All that means that this is the time to take stock: for business survival the time to act is now.

Company directors, owners and accountants need to think carefully about the business going forward. Assessing the situation and forming a strategy based on that assessment, is key to business survival and success.

If you need help doing this, then it may be time to call in the business rescue experts. Professionals with the experience, know-how and acumen to help you help your clients consolidate and re-focus, to tackle the challenging times that lie ahead.

For practical advice, call 01455 555444 to speak to one of our licensed insolvency practitioners, email us at enquiries@fasimms.com or request a call back