Experts at leading business advisory practice Quantuma LLP believe the current restrictions on trade have the potential to set off a wave of corporate restructurings, but also believe that there are still opportunities to buy and sell businesses and that transactions will still progress.
Andrew Watling, managing partner of the firm’s Solent Region, suggests that many businesses are presently seeking advice on their distressed financial state, but that many enquiries will not instantly translate into insolvency appointment.
“We are seeing a lot of people coming to us for advice on what to do and what not to do as technically their business is insolvent.” The anticipated suspension of Wrongful Trading action, which might normally result in directors facing personal liability for any increase in a company’s liabilities when they ought to have known a company would end up in liquidation, at least relieves them of one pressure.
“The Government is keen to avoid too many companies going out of business and by this action, the introduction of CBILs and supporting the furloughing of staff, it hopes to dissuade directors from taking precipitous action and closing businesses that might have a chance to survive once this crisis passes. A growing spate of administrations and (worse) liquidations is likely to lead to more and more of the same, leading to spiralling asset values and a collapse in business confidence.”
Quantuma has recently strengthened its South Coast team with the recruitment of Philippa Robinson as corporate finance director, who believes that business owners and potential purchasers are trying to be positive in how they are approaching the next few months and many are looking for opportunities in the situation rather than focusing on the difficulties.
Robinson added: “Obviously not all business owners are in the same position, but many people I am speaking to are one step removed from that or in early stage or tech businesses. Private equity investors have mostly been taking stock of their portfolio companies and aside from those in leisure, retail or travel, most are feeling fairly upbeat about the futures of these investments.”
Robinson believes that businesses that are well capitalised, with high quality finance experience in their management teams will be able to get through a period of uncertainty. They will mostly be able to produce cash forecasts and plans to get through this period but that is not the case in all businesses. “From my own experience, I know that many entrepreneurs who have run successful businesses often do not fully appreciate the value of financial information and forecasts and may now find themselves with a deficit of skill in that area.”
Simon Campbell, newly-promoted partner at Quantuma, believes communication and openness is critical when negotiating with landlords and creditors. “Currently, all your creditors understand the position you’re in – the bank is unlikely to call in their loan, HMRC will not come knocking, the phone and electricity company are unlikely to cut you off. You will want to strip back your 1, 2, 3 & 6 month cashflow forecasts, ensure your employees and key suppliers are paid as much as possible and apply for the various loans and grants available; sit tight and ride it out.” Financial information will therefore be critical in assessing whether a business can survive the current crisis with proper planning and creditor forebearance.
Andrew Watling added: “This last week has proved that directors are prepared to take advice from the right professionals and what they need most is the ability to rely on professionals with a variety of skills and techniques to provide assistance with financial modelling – cashflow forecasts, pre-lending reviews and assistance obtaining and choosing finance – that could make a difference between qualifying for assistance or even surviving these difficult times.”