‘Costs of Living Crisis’ Bites for UK Businesses

The cost of living crisis is now squeezing UK businesses, as well as individuals.  It is being driven by surging fuel and energy prices, with inflation running at 9%, its highest rate for 40 years.

For the businesses that consume high volumes of these resources, such as manufacturing and other industries (including agriculture, construction, mining, and transportation), even small rises can present a significant challenge, and lead to a rise in insolvencies. 

Although retail sales remain above pre-pandemic levels, they are also falling.  Online sales fell by 7.9% in March 2022, which indicates that consumers are reducing non-essential spending as you might expect.  This will be another blow for many businesses which suffered the most because of Covid-19, including bars and restaurants, gyms, and theatres. 

What can be done to protect your company’s finances?

• Review budgets

Revisit your budgets and financial projections and ensure they are realistic.  Consider what you reasonably expect to make in terms of sales and allocate budgets against all operating costs (such as your direct costs, insurance, marketing, payroll, premises and professional costs).  Periodically review these forecasts and if actual figures are far from your original projections, consider why, and act upon this information.  Also take the opportunity to cut back on any unnecessary expenses. 

• Dealing with overdue Invoices

Unpaid invoices have a negative effect on any business.  If payments regularly exceed the agreed terms, then you may want to charge interest for any period over and above that.  If a long-standing customer is struggling, it might be appropriate to take a more lenient approach but be clear on your position.

• Reviewing funding

There are many ways to get business funding, ranging from start-up loans, traditional bank loans, factoring, or peer-to-peer lending. In addition, The Recovery Loan Scheme is currently open to businesses until 30 June 2022 (subject to certain conditions).  You can find more information on this scheme, here.  Always be mindful that some of these options may require commitment from you in the form of a personal guarantee.

• Review management accounts

Where possible, keep management accounts on a monthly or quarterly basis. These should help you to identify specific concerns at an early stage and enable you to take professional advice where necessary. 

What should I do if my business is struggling?

If your company is struggling the most important thing to do is seek advice.  By speaking to a Licenced Insolvency Practitioner, you can work together to establish whether the problem is temporary, or whether more formal action is required.

An Insolvency Practitioner is best placed to provide advice on all the options available, even if an informal solution would be best.  However, if the problems are too significant and the company cannot survive, an Insolvency Practitioner can explain what course of action is the most appropriate in those circumstances.

Company Voluntary Arrangements

A CVA is a binding contract between a company and its creditors to pay back some, or all, of its liabilities over a specified period.  This would only be appropriate where the business itself would be viable if it was not so heavily indebted.  A CVA is usually for a term of five years, and once the arrangement concludes, any remaining balance of unsecured debt is written off.  You can read more about the CVA process, here.

Administration

Administration is a useful process which protects a company from creditor pressure and provides an automatic stay on any current or pending legal actions.  It will usually facilitate the rescue of the company, or the sale of its business and assets on a going concern basis.  Administration must achieve a specific purpose and you can read more about the Administration process, here.

Company Closure

Unfortunately, in many cases you will need to consider whether the company should be wound-up (formally closed). Voluntary liquidation is a formal insolvency procedure formally known as Creditors Voluntary Liquidation (CVL).  As part of the CVL process, all assets belonging to the company will be identified and sold for the benefit of the liquidation process.  You can read more about company closure, here.

Help from a Licenced Insolvency Practitioner

Keywood Group are a firm of Licenced Insolvency Practitioners with offices in Birmingham and London.  Our team has over 20 years’ experience in advising businesses on their options and dealing with company closure.  Our experienced team will work with you to assess the options available and guide you through the process. 

If you want further information, please contact us for a no obligation chat.