Many businesses will find that the recent sharp change in the business environment means that some form of restructuring is needed in their business to ensure their viability going forward throughout 2010.  A focus on costs is paramount.  A business cannot budget to continually make losses.

Line by line, the costs of the business need to be examined to see where the business can pare back costs to return its operations to profitability.  Often staff costs are the highest cost a business has.  Redundancies or reduction in hours for staff is something that needs to be approached delicately, having taken the appropriate advice in order to avoid lasting industrial relations issues.

Next, focus on collecting your cash.  Your debtors represent the locked up profit of your business and need to be vigorously addressed on a daily basis.

As we face into the second half of 2010 however, many businesses have now gone through the hard yards of cost cutting and have stabilised their businesses.  However, despite the fact that month to month the trade of a business may have steadied, in many instances it is a lack of cash resources and a build up of legacy debt rather than a lack of monthly profits that will be the reason behind SME failures over the course of the rest of this year.  

A company needs the fuel of cash to prime the pump of the business to allow it continue to realise its plans to make a profit.  Early recognition by the promoters of a business that its cash flow problems are intensifying is the key to corporate recovery, along with taking sound professional advice. There are options there for the struggling business owner to consider to avoid liquidation of the business.  These can include:

1.    Agreed Payment Schedule: Approaching creditors with a proposed payment schedule is always the first place to start.  Communication with creditors is the most important factor; if you are up front with your creditors, they are far more likely to be fair with you.  Typical payment schedules would involve clearing the creditor’s debt over a period of say 1 year in instalments.   

2.    Creditors Voluntary Arrangement: A CVA involves creditors accepting they are writing off a portion of debt to allow the business to continue.  Normally a creditors meeting is called to discuss proposals for a Scheme.  It is often difficult to ensure all creditors agree to the Scheme as because of its informal nature it is never binding on creditors.

3.    Examinership: This involves the appointment of an Examiner whose job is to put in place a binding Scheme of Arrangement which balances all of the competing claims of the creditors of the company, under High Court protection lasting up to 100 days.  This is normally the director’s last throw of the dice before liquidation, and recently has had a high success rate in Ireland.