Don’t fear the insolvency adviser

Company directors are being urged to seek early advice on how to tackle the tough times ahead. With a lack of credit options in the current economic climate, many businesses are facing the fast track to administration or liquidation. But early advice from specialist corporate recovery and insolvency groups could head off disaster.

Andrew Cawkwell, head of corporate recovery and insolvency with Watson Burton, says: “Early intervention can be a tough decision to make, especially if your company is still making a profit even though it is in decline. Often the thought of taking advice from insolvency professionals at this stage is unpalatable to the management team as they fear that insolvency professionals are like vultures – circling prior to the terminal insolvency event. This is not the case and if insolvency is to be avoided, it should not be about crisis management; it is about taking appropriate advice as the earliest opportunity.”

Cawkwell says early warning signs for company directors include: debts cannot be covered as and when they fall due; net assets are less than net liabilities; staff wages cannot be paid; there is a serious shortage of working capital; a significant customer contract has been lost; and the firm has suffered as a result of significant bad debts. Advisers may suggest measures from basic cost-cutting and renegotiation with suppliers to the downsizing or retraining of staff.

Pre-packaged administrations are an option, particularly for struggling companies that are anxious to keep staff jobs safe. The upside is that the buyer is identified before the insolvency takes place and all aspects of the deal are put in place to ensure a smooth transition on the day the administrator is appointed. This approach, however, can leave creditors feeling aggrieved with the level of bad debts they are left with.

Company directors are advised to keep their banks up to date on the state of their businesses, and that taking early steps to protect themselves means their banks are more likely to be supportive.

Cawkwell says: “The credit crunch is biting hard on many construction-related businesses. The message is to engage your advisers and keep talking to them. That initial consultation can set your business on the right path.”

Subtle changes in business practice can have a big impact on costs as well as helping the environment, the Forum of Private Business reminds small firms. Research by government-funded initiative Envirowise found that more than half of office workers admitted printing documents wastefully. The Carbon Trust claims businesses could save £2.5 billion over the next 12 months if they implemented energy-efficiency schemes, including simple measures such as switching off unnecessary lights. James Miller, of the forum, said: “A reduction in waste means spending less money. The problem is smaller businesses don’t know where to start or who to turn to for help.” Visit www.envirowise.gov.uk or sign up for CIBSE’s 100 hours campaign, www.100hours.co.uk.

Up to 20% of small businesses run by tradespeople operate without any insurance, according to research by SME insurance provider Insurantz.com. With thousands of jobs at risk because of the credit crunch, tradespeople are expected increasingly to seek out ad hoc independent jobs. But without public liability and statutory employer’s liability insurance, they are putting themselves at risk of fines, damages claims and even prison. Julia Evans, the chief executive of the National Federation of Builders, said: “As conditions become increasingly tough for smaller firms, business owners will naturally look to cut overheads. But operating without adequate insurance cover exposes you to far greater levels of risk than a downturn.”

The Department for Business (BERR) has launched a campaign to help businesses to cut time and money spent on employment costs. The Employing People campaign, part of BERR’s Employment Law Guidance Programme, follows research which suggests that businesses are spending unnecessary time and money on complying with employment law. The campaign aims to direct businesses to online tools, calculators and interactive guides to help them to understand their legal obligations. Pat McFadden, employment relations minister, said: “Employment law is often easier than business owners think. Instead of spending money on buying in professional advice, they can get access to easy-to-use, fully compliant documents.” For more information, go to www.businesslink.gov.uk.