This extended downturn has now been with us for nearly 6 years and despite recent figures from the ONS (Office of National Statistics) suggesting that UK PLC avoided a double dip recession last year; at best we have bumped along the bottom and we are years away from achieving the levels of GDP which we sustained in early 2008.
We must not be negative though. We have seen how important good news is at providing that much needed feelgood factor which actually helps to buoy the economy. Whilst we are not looking at Chinese or Indian rates of growth, we can at least look forward to sustained growth over the next few years.
That is good news for the country, but not necessarily great for the individual companies, whose very existence may well be governed by whether they are still supported by their bankers. These are the ‘walking dead’, a term used quite widely in the last eighteen months (and indeed by me) and one which has come to encompass those businesses, who are only still in existence because their bank have not yet pulled the plug…
Are you one of these businesses?
Typically, you will have extended your overdraft facility with your bank, perhaps several times over the last few years and you have tried to arrange for a loan from your bank to pay off the overdraft and they have refused to provide one and now they wont extend the overdraft anymore and you need more money, because your creditors are growing at a faster rate than your sales. And you cannot generate significant additional sales, because you have not got the marketing budget to go out there and increase your sales.
Waiting for the green shoots of recovery?
This puts you right on the edge, every single day, and at several critical times throughout the month, dependant on on so many external factors to allow you to pay those most important creditors. Yes, you know the ones, your wages bill, PAYE and your key suppliers. And you can’t think about anything else, apart from cash-flow, cash-flow, cash-flow.
It is either a constant spiral of decline or you are just treading water, waiting for the next bad issue to set you down still further… Should you still be trading? Probably not, but this is not just about the here and now, it is about the company’s future prospects and of course your staff. And business owners and directors make critical decisions like these every single day.
Thankfully, most companies decide to continue and for now many of them will reside fairly and squarely within the ‘Walking Dead Zone’; keeping the bank and your critical creditors happy and hoping your sales grow strongly enough to show you that there just may be light at the end of the tunnel.
But is this enough? Is there anything else you could be doing that could preserve your business, your staff’s livelihood and reduce your business from its mountain of debt? You could try to change your bank and apply for finance or an overdraft facility from a new bank… But this is unlikely to be successful in the current climate.
You could consider entering into an Corporate Voluntary Arrangement (CVA) and allow an insolvency practitioner (IP) to help you clear your debts with the agreement of your creditors. At least this would cast light at the end of the tunnel. You would be severely restricted in terms of how you trade, but your debt ratios would be going down and within a few years you could actually be debt free. You would be more ‘wounded than dead’.
If all else fails and you still want to keep the essence of your business going you could, enter into a pre-pack administration This is where an IP places your business in administration, but a new leaner version of your business rises from the ashes ( sometimes known as Phoenix from the ashes administration), but this is dependant on you being able to 1) Find funds to acquire the phoenix business from administration and 2) Being able to persuade your key creditors and indeed your customers that this is a positive thing and that continuing to trade with the new business would be a good business decision. This is a complex move and even after your new company rises into the sky and begins to trade debt free and as a new entity your business may still be rife with problems. You won’t be able to get credit, your critical suppliers will want cash in hand and even your customers will treat your every move with suspicion. if you can get through this though and you begin to grow your business again, your new business will be free from encumbrances and you will now be ‘walking tall.’ Fail to secure enough new business however and you may end up back where you started.
The truth is there is no easy answer. Doing nothing and just standing still is almost certainly the worst thing you can do. But which avenue should you take and do you want to stay one of of the ‘Walking Dead’?…
All Things Financial 