A great deal, perhaps too much, has been said as to Brexit over recent months. We can add Brexit articles, commentary and discussion to the list of death and taxes as certainties we all sadly encounter.
Forecasts of doom and destruction in commercial terms in the event of a no deal are well publicised: whether to an extent that is confined to genuinely held views or includes at least an element of political argument remains to be seen. On the other hand the promised opportunities that will be delivered by Brexit carry more than a whiff of ideology and wishful dreams.
Whatever the outcome there is one issue no business can avoid: the risk of insolvency and hence failure (of themselves or customers), be that liquidation, administration, a company voluntary arrangement or the dwindling of a business to its ultimate demise.
Of course business leaders and owners succeed because they look forward and are passionate as to their products and services. To spend any material time naval gazing as to the possibility of insolvency and failure is alien to such people: instead they recognise risk but that is an inevitable (and in some cases thrilling) element of their world.
As with so many things in life striking a balance is wise. Your car is fitted with airbags and your factory has a fire escape: not because you welcome such expense but because that investment in these areas is proportionate in seeking to limit potential damage and cost, in particular whether that damage or cost may be due to factors outside your control.
Having practised insolvency and recovery law for twenty nine years I have seen business failure, rescue and recovery whether that be during a recession or a period of growth. The bottom line is that it happens at all times, albeit in greater numbers when the economy enters choppy waters.
Below are our top tips for every business to consider. Many businesses will of course already address all of these regularly and effectively, human nature however is such that in busy, good (or goodish) times these issues may have a tendency to drift to the back burner.
Salary/dividends/financial records: the classic case of an insolvent business is for the directors a few months after liquidation or administration to learn that as the payments they received over the previous year weren’t formally recorded and administered then they are treated as a loan that is due to be repaid. The last thing a former director wants to hear having just lost their business. Therefore don’t ignore the internal formalities when it comes to every payment the directors receive: be that reimbursement of expenses, payment of salary, bonus, other benefits and dividends. The director who carried on his practice of withdrawing money on the basis that after the year end he would sit down with the accountant to decide how to classify those payments is running a very big risk. Usually that retrospective exercise is impossible. Is this a liquidator taking advantage of what is a traditional accounting practice? The answer is it doesn’t matter as the law is on the liquidator’s side as a starting point and demanding repayment.
Debtors: continually review debtors; speaking the obvious whilst debts and cash are both recorded as assets they don’t have the same value. To what extent are sales staff motivated to land orders that reflect resulting payment?
Terms and conditions: do your terms and conditions apply? When were they last reviewed? Have your customers clearly signed up to them? Will the customer claim that its terms and conditions apply? Is there a cut off period for the customer to raise any complaints? It is bad enough having to deal with overdue debts, the last thing the supplier needs is to become bogged down in a dispute as to whether it can immediately cease supplies, reclaim any goods that remain with the customer, charge costs and effectively dictate the way forward. Despite customer claims of inability to pay we regularly see customers finding the money when and if pushed, though they will firstly try to avoid or at least delay payment. Look to deny the customer those options thereby putting your business at the head of the queue if money is available, surprisingly often it is.
Do you ask for personal guarantees? This carries the obvious caveat that a guarantee’s value is confined to the ability and will of the guarantor to pay. Similar to a supplier extending credit based on it enjoying retention of title if in reality that has no commercial value a supplier is at risk of exposing itself to bad debt due to false confidence.
Again sales staff: are they motivated purely by sales figures or cash received? What is their motivation to ensure that the customer provides full details and signs up to your terms and conditions?
Conclusion: whatever the economic climate business face risk every day. Whatever the Brexit outcome those risks have increased, hopefully not to your business but inevitably to another that you deal with. The bottom line is that whilst no one can wave a magic wand to eliminate risk there are a number of practical steps for both internal external issues that we have over the years seen as a valuable investment. ”