Deciding on the future of your business - Part 2

Last November, we explored some of the options available to company proprietors when deciding the future of their businesses, with a particular focus on liquidation. In this issue, we are now going to touch on some considerations regarding the going concern of a business and when business owners need to take a pragmatic view of how their business is performing. Not every business is going to be a success but the best business people find this out fast and understand it is not a reflection on them – instead of being emotionally attached, they take a clinical overview and move on to new business avenues and prove their success that way.

BUSINESS CASHFLOW
This requires careful examination of the funding mix that is appropriate to your business – does the business need debt to fix a cashflow issue or does it need new equity investment? It requires reflection and an honest appraisal of the business that is logical and not just emotional.

Simplistic and shortterm debt solutions can involve overdrafts and SME lending facilities (bank or financial institution loans) or even injecting personal funds into the business via a Director’s Loan or new equity. It should be noted that these forms of funding carry a risk element be it in the form of Personal Guarantees or losing one’s personal savings.

“Insanity is doing the same thing over and over and expecting different results.”

Oftentimes businesses which are loss making are fundamentally unsound and require serious reorganisation. Sadly, the anecdotes of down and out business owners who makes no changes to a lossmaking business persist because people still hold the belief that more money will fix the problem.

If you or your business advisors cannot formulate a step-by-step business plan to turn a business around, then, you need to acknowledge the fact that pouring more money into the business is highly unlikely to fix the business but instead prolong the inevitable business failure.

NEW INVESTMENT AND BUSINESS SUPPORT SCHEMES
While many optimistic entrepreneurs believe they can fix an ailing business, it must consider whether a business is fundamentally sound. Is the cost base under control and can revenues be nurtured?

Common pitfalls to avoid are the delusions of raising new equity or accessing grants as a way of sustaining a bad business and business practices.

While many successful businesses have started with grants, business partners and equity investors, most SMEs have built up their funds from zero, without relying on 3rd party funding or grant aid.

EXAMINERSHIP
Examinership is an option not considered by many.

Most companies in Ireland are of the size to qualify for Examinership via the Circuit Court, rather than the High court.

In order to enter examinership the following need to be in place:

1. A good management recording / accounting system.
   
2. A Team of Staff, the Staff in most cases are the true business.
   
3. The potential for a 3rd party to take over the business and invest into it by:

            1.Cash Investment
            2.Extended Products / Services.
            3.Fresh Skillsets / Management

GENERAL EXAMINERSHIP OBSERVATIONS:

1. In order to go into Examinership the Court must be satisfied that the potential to survive exists.
   
2. Creditors: Quite often they get less than 10c in the Euro.
   
3. Revenue: In general, they will endeavour to recoup 100%
   
4. Personal Bank Guarantees do not go away.
   
5. Landlords may find themselves in Mediation to reduce their Rent, but only to the current economic level.
   
6. Be conscious that when the Creditors are reduced, the VAT on the reduction if previously claimed by the company reverts as a liability to the revenue on the company.
   
7. Examinership often brings in Strangers to the Business as examiners should advertise for Investors.
   
8. In Examinership employees’ rights continue unlike Liquidation.

IN CONCLUSION:

• Act early
  
• Lingering costs everyone
  
• Get early advice
  
• Examinership via the Circuit Court can be a viable option.
  
• Liquidation of a good business does not spell doom in the right hands.