Where to Turn for Business Advice?

Most people in business will have suffered a sleepless night or two when cash-flow problems loom, but where do business people turn to when they need someone to help? Loved ones are usually out of the question as they will inevitably have been contaminated by the emotion of the situation anyway. The old days are gone when you could sit down and talk to your local branch manager who knew you well and had the authority to make the decision for you. Nowadays, you are more likely to be sold something completely worthless by a ‘relationship’ manager who is probably too young to even have had one – a relationship that is. The Citizens Advice Bureau are not in a position to advise if you mention the word business and debts in the same sentence and besides, they are becoming few and far between as government cuts dig deeper.

A religious belief of some kind can provide someone who simply listens, but you are unlikely to see a burning bush, or have a revelation that indicates a way forward.

It seems that the internet has been the saviour of some who are able enough to switch on the laptop and search for help. Certainly we get our share of truly dreadful and often heart breaking accounts of how someone has found themselves in difficulty.

Despite what most believe, business people in trouble are not all directors shirking their responsibilities, though it is easy to see why it may appear so when you are a creditor and a company that owes you money enters company liquidation. From experience usually around 20% are forced to close through an outside unforeseeable incident such as stroke, heart attack, sudden death, or the impact of a family death, or long term illness. A further 30% are often guilty of no more than putting too much faith in a particular project, or company, and OK it may be mismanagement, or simple inexperience, but we all have to learn.  Making mistakes whilst learning can be a very expensive way to learn, so this should be avoided at all costs – consult a professional.

For most small businesses they may turn to their accountant, but this is hardly fair on them as in most cases they will see a client once or twice a year if they are lucky. The medium sized companies may have an in-house bookkeeper/accountant, but they will be too close to the problem and unfortunately in my experience usually, unfairly, carry some or all of the blame for the company predicament. If you are a sole trader or a partner in business it is likely that the first person you speak to is either your life partner, and or business partner. Either is a mistake and often leads to the ‘blame game’ which in turn applies negative pressure on the relationship. It is a sad fact of life that around 60% of those contacting us will be separated, divorced or splitting up. We sometimes forget the impact on families business stress can have.  

If the business is not viable and you are a sole trader then there is no difference between personal and business debts. It is not better, as was suggested by a recent client that; ‘if you are a partnership then your debts are halved aren’t they?’ The answer is it is not as simple as that and it can be worse in some cases where, as is usual, one partner has no assets and the other has lots. Unless you have a limited liability partnership and or a legally binding partnership agreement then the debts will be joint and several. So if your partner is about to sign a contract for a new BMW on the partnership business account you may want to hold back the signature as you could end up paying for it if things go badly.

You would think directors would do better when the company has limited liability? Not so, as banks and suppliers obtain more personal guarantees and security for provision of supplies or lending. Unfortunately if the company does end up in liquidation the insolvency practitioner is not allowed to help the director by regulation. If you think about it this makes sense as the insolvency practitioner acts in the best interests of the creditors not directors. Whilst an insolvency practitioner must have due care for a director with a personal guarantee they cannot give direct advice on the personal guarantee when acting for the bank as this is a clear conflict of interests. Of course the biggest taboo subject for an insolvency practitioner and guaranteed to make him/her to go pale prior to being engaged is the subject of an overdrawn directors' loan account. In liquidation, this can have very serious personal implications for any director and the insolvency practitioner will be duty bound to pursue these on behalf of the creditors, even to the point of bankruptcy. Remember who the ‘practitioner’ is acting for? This situation should be discussed in detail if an insolvent liquidation is being considered as a potential solution. There are unscrupulous ‘practitioners’ who are well known in the business who will actively seek out naïve directors seeking a ‘liquidation bargain’ and thinking that they are being adept by obtaining the cheapest liquidation on the internet, the truth is this could not be further from the truth. If a liquidation fee seems too good to be true then it probably is and there will only be one loser.

If a liquidation is being recommended to you as a solution ask direct questions and get straight answers and if need be get confirmation in writing as to what the process will be, before, during and after liquidation. If in doubt, ask to speak to past clients and check for testimonials on the ‘practitioners’ website. If a director entering into liquidation does not perform these very simple checks then they do so at their peril.  Just as the internet can be a saviour it can also be a dangerous place too.

Your accountant may know someone who will not simply and automatically think of liquidation as the first port of call and if you have seen previous blogs you will know this is unlikely to be a modern insolvency practitioner. You knew I was going to say "seek out a business turnaround consultant", but I genuinely think this is the best option in today's business climate. They are used to working in high pressure and insolvent environments and if they are any good they will provide initial free advice and even solutions for you.

Whether you are a director, sole trader, or a partner, if you are having severe cash-flow problems and you are worried about your personal situation you should be speaking to someone who looks after your interests whilst having due care for the creditors? Someone who is well used to negotiating with creditors and someone who has earned their stripes through having managed many businesses, gaining hard business experience. Doesn’t that make more sense? Do yourself a favour and seek out a business turnaround consultant, you can learn more here at the Turnaround Management Association http://www.tma-uk.org/.

Do insolvency practitioners do turnaround?

I read a very interesting article recently highlighting this question and it may seem an odd question to ask, but do insolvency practitioners actually rescue companies, or simply put them into liquidation? Put plainly, do insolvency practitioners rescue companies? The question was posed by a well-respected rescue CEO and consultant with over twenty years in rescuing businesses. My experience is, I have to say, not good when answering this question. I have been advising large medium and small companies for over thirty four years now and rescuing a failing business is not for the faint hearted, that’s for sure. So why is the question even being asked? Well I suspect this well respected gentleman has had similar experiences to me over the last five years or so, through the heat of a recession.

Unfortunately, I do believe insolvency practitioners generally have lost the appetite and more importantly lost valuable experience in rescuing companies and have put more focus on more expedient liquidations. In the last year alone we have been contacted by around 2-3,000 company directors seeking business debt advice. The majority of directors that we have advised who had also spoken previously to competing insolvency practitioners were genuinely surprised and greatly relieved when we discussed how we may be able to rescue the company and not simply put it into company liquidation. Now, it is not possible to rescue all companies and I accept there are a lot of so called zombie companies out there, but shouldn’t we at least work from the premise of ‘how do we save this company’ rather than how quickly can we close it?   

Certainly the majority of insolvency practitioners appear driven more by regulatory and compliance matters than saving the company. I guess this is understandable when they are subject to spot checks and can lose their licence if not completing procedures thoroughly enough, but is this the real reason or a symptom of something else?

    

Over the last five years or so, since the recession, we have seen and heard of serious investment in compliance policies and procedures which has turned into an entrenched dogma creating a completely different type of insolvency practitioner to that which existed 7-10 years ago I suspect. There is something else though when you look at the increased numbers of staff. The new kids on the block don’t know anything else other than compliance, regulations and following the necessary processes and many have no first-hand experience of rescuing a company, or negotiating with creditors over business debts.

With the economy improving and the Insolvency Service cutting down in size, it may be that a downturn in insolvent liquidation cases may well be followed by a number of insolvency practitioners starting to struggle and being taken over. It may seem improbable, but there is already evidence in the market place that insolvency practitioners are trying to change their approach as they begin to struggle. The insolvency practitioners that cannot adapt to the changes will struggle to survive in a market where desperate practitioners are already pushing liquidation fees down in an attempt to reel in more business whilst their profit margins get squeezed. A note of caution here; far too many directors do not think to check the website of insolvency practitioners for genuine testimonials, or ask to speak with the insolvency practitioners' past clients. This should always be the first action that any company director should take who is thinking of engaging, or referring an insolvency practitioner.

The 'big boys' appear to have swallowed up a significant portion of the ‘company rescue’ talent, but not every SME can afford their fees and in any event, these bigger firms of insolvency practitioners will continue to ‘cherry pick’ their clients based on certain prerequisites. The average SME traditionally turns to his/her accountant for help and that is as it should be as the first port of call. Perhaps the SME accountants should check who they refer their clients through to in future more than they previously have when they want a company to be rescued?   

Back to the question: Do I think insolvency practitioners do turnaround? Well, the larger clients will probably be able to afford the big names, but the smaller companies are left to a roll of the dice as to whether someone will genuinely try and turn the business around, or simply put it into company liquidation.

 

There is a simple solution though – check the websites and how about asking to speak to past clients?