Company insolvencies in England and Wales reached a 13-year high in 2022. This was 57% more than in 2021 and was largely driven by record numbers of Creditor Voluntary Liquidations (CVLs), accounting for 85% of all company insolvencies last year.
Many businesses survived the pandemic due to government support but that has now come to an end. This wavering business support coupled with the rise in interest rates, the cost of living and the continued uncertainty in our economy will no doubt be causing business owners to question whether this is just another tough storm to ride out, or whether it is actually time to ‘push the button’ and close the doors.
Zoe recently took the difficult decision to wind-up her family-run business after 12 years of trading. Several external factors put the business in a tough financial position and after seeking advice early from an insolvency practitioner she reluctantly decided it was no longer viable.
She has chosen to share her personal experience of winding up her business at the right time – while matters were still in her own hands and before it became a compulsory process – in the hope that it will encourage others to seek advice early to ensure the best outcomes for all parties are achieved.
How do you know when you should push the button?
This is Zoe’s story:
“I had always assessed my business’s finances with a fine toothcomb, being sure never to confuse cash flow with profit and loss, but more importantly, never looking at things through rose-tinted glasses. You have the very uncomfortable job of being the biggest supporter and the biggest critic of your business, all at the same time.
“I had no creditor pressure. I had never missed a payment to the revenue in the whole 12 years of trading and I had cash in the bank. But I chose to ‘push the button’. I am sure a lot of people will think I made the wrong decision at the wrong time. I absolutely didn’t.
“Despite having no imminent financial pressure, and a relatively healthy cash flow position, the business had been loss-making for the last 3 months. I owed £150k to suppliers by the end of the month, our annual utility bill had increased by £24k. I was questioning whether to pay my next VAT bill in the fear of running out of cash and the most pressing issue was our sales figures were the worst they had ever been with no signs of improving.
“The sleepless nights kicked in and the anxiety-induced days all ran into one another. I had staff members, who had families and mortgages, and I had customers who had paid deposits using their hard-earned cash. The thought of letting all of those people down was a horrific feeling.
“I knew I had to act quickly, time was not on my side, and I ultimately wanted to do the right thing. I chose to seek advice early from an insolvency practitioner. Most business owners see seeking advice early as an admission of failure but this couldn’t be further from the truth. By seeking advice early, you may find that the business can actually be saved by way of a restructure, releasing cash against company assets, or a sale. Speaking to an insolvency practitioner can help you explore whether your business is viable or not, and put an action plan in place.
“I came to the conclusion that my business was not viable and I had to do the right thing for my staff, customers and suppliers. It wasn’t a storm I could ride out because there were so many factors I couldn’t change or control. I had two options - stay in my comfort zone and keep trading with the knowledge that someone would eventually push the button for me or push the button myself.”
Is your business viable?
If you are unsure about the viability of your business ask yourself the following questions:
How healthy are your finances? Do you have any imminent cashflow issues and has your potential future income dried up? Can you cut your overheads down? Has your revenue decreased and will it continue to decrease? Are you piling in your own personal funds and if so, are you going to get them back?
If you have been operating at a loss for a while, how quickly are you burning through your cash reserves? How quickly will your financial resources be depleted? Can you release any cash tied up in invoices or other assets?
Do you have any creditor pressure? Have you received a winding-up petition against the company and have you received any judgements?
Has your personal health deteriorated? Seeking independent advice may help you be able to think rationally and put an action plan in place that will ensure that you reach the best outcome for your creditors.
Is your business viable? Can it continue to be viable through the current crisis?
Identifying issues and taking appropriate action at the first opportunity can make a significant difference to the success and longevity of your business. Our team of experts will work with you to understand and overcome those challenges, help to restore stability and improve operational and financial performance. Call 0808 144 5575 or email help@armstrongwatson.co.uk for confidential help and advice.
