It sounded like such great news.
Earlier this week, I was talking to my friend Keith Steven, managing director of the KSA Group. He specialises in turning around distressed businesses.
Keith told me he’d noticed that business liquidations were down around 40% in recent months. There were a lot less businesses closing than usual!
Now, at this point, many people would have brought out the Champagne.
But I was very upset…
…because the truth is, that stat hides a horrible truth.
Many of those businesses simply should not be staying open. They are not financially viable – they are probably heavily in debt – but they can continue to trade precisely because of the Coronavirus situation.
“I hate the term ‘Zombie companies’, but that’s exactly what they are,” Keith told me. “They would normally have failed, but they can continue operating because of government loans and furlough schemes. They’re being kept on life support.”
If you’re a business owner feeling the financial strain of the current situation, this raises a horrible question.
Should you be hanging on right now – continuing to struggle and build up debt…
…all in the hope that your business will bounce back later in the year, when (perhaps) the Coronavirus situation has improved?
Or is the smart thing to shut up shop now – recognise that your business is never going to recover, and that it’s time to cut your losses?
Keith deals with businesses grappling with this dilemma day-in, day-out.
He saves many of the businesses in the former category – often with our help, because we clarify their financial situation and sort out their finances. And he takes businesses in the latter category through the insolvency process.
The problem is further clouded, he told me, because debt collectors are legally forbidden from collecting debts right now.
Normally, when you’re in financial trouble, you’d have creditors knocking at your door – for example your landlord, debt collectors, or the biggest one of all, HMRC.
Since that isn’t happening – yet – you might not be feeling the pressure to wind up, when by every objective measure you should be. It’s a false sense of security.
In reality, Keith and I agree that there is a very easy test to help you decide whether or not your business is actually worth saving.
“If COVID suddenly came to an end and you suddenly had to pay back all those government loans and any other debt you’ve accrued during this period, could you do it?”
If the answer is ‘yes’, then by all means hunker down and continue to trade. Just use this time wisely, to get your finances and business in the strongest possible position to deal with the inevitable financial tsunami heading your way.
If the answer is ‘no’, then cut your losses right now because with every day that goes by, your business is sinking into deeper and deeper trouble…
At some point in the future – when those loans are recalled, which will happen – you will have to repay those debts.
Why let them get bigger and bigger – and tougher and tougher to deal with?
Especially because, if you do end up winding up your business, the law requires that you prioritise your creditors?
Your own interests will be irrelevant at that point. You might even be personally liable for some of that debt – a frightening prospect I’m going to address next week.
Now, I know that this truth can be incredibly difficult to face. If you’ve spent years pouring your heart and soul into your business, recognising that you’ve reached the end of the road can be shattering.
But it will be even more shattering 6 months down the road, when you’ve built up more debt… have more angry creditors… and face more life-changing consequences.
You wouldn’t have gained a thing (other than stress) by continuing to trade all these months. You will only have lost.
So you need to be ruthlessly honest with yourself.
If your business is in distress right now, it is actually worth saving?
If you’re not sure, come speak to us. We’ll help you understand your true financial situation so you can make this decision with utter clarity.
If it is worth saving, we’ll do everything we can to make that happen. Have hope – we’ve turned around many businesses which were in very deep trouble.
If the worst happens and we conclude that your business cannot be saved without an expert turnaround advisor, we’ll refer you to Keith.
No insolvency process is pleasant, but he will do his utmost to protect your position and reduce your personal liabilities. It really will be the best option, under the circumstances.
The only wrong thing you can do is delay.
Just email or call us on 01279 647 447 for a confidential conversation about your business finances.
