If your business is struggling, it can feel as though there is no way out. At Scotland Liquidators, we speak to directors of Scottish limited companies every day who feel overwhelmed by their financial situation, and don’t know where to turn. In many cases, a viable business can be turned around, even from the brink of insolvency, provided action is taken early enough.
This Scotland Liquidators guide sets out the practical steps you can take to turn your failing business around and explains when it might be time to consider other options.
Recognise the warning signs of business failure early
The earlier you identify that your business is in trouble, the more options you have. Many directors we speak to tell us they knew something was wrong months before they picked up the phone, but they hoped things would improve on their own. Unfortunately, financial problems rarely resolve themselves.
Warning signs to watch for include:
- Regularly struggling to pay suppliers, staff, or other creditors
- Relying on credit cards, personal savings, or overdrafts to cover day-to-day costs
- Losing key customers or contracts
- Falling behind on HMRC obligations such as VAT, PAYE, or corporation tax
- Receiving threatening letters or calls from creditors
- Avoiding opening post or checking bank statements
If any of these feel familiar, it does not mean the situation is irreversible, but it does mean you need to act. Our licensed insolvency practitioners recommend the following five step plan when you believe your company may be seriously struggling to survive:
- Understand your company’s financial position
Before you can fix a problem, you need to understand its full extent and how deep rooted the financial issues of your business are. This means taking an honest look at your company’s finances:
- Review your cash flow – Map out exactly what money is coming in and going out over the next three to six months. Identify the extent of any shortfalls and when they will hit
- Understand your creditors – List every creditor, how much your company owes to them, and whether any debts are secured against assets or backed by personal guarantees
- Check your balance sheet – Are the company’s total assets worth more or less than its total liabilities? This will help determine whether your company is technically insolvent
- Review your contracts – See whether there any leases, supplier agreements, or other financial commitments that are dragging the business down
It can be difficult to see these figures written down in black and white, but it does give you a clear picture to work from. If you believe your company is insolvent, our licensed insolvency practitioners here at Scotland Liquidators can help run through these figures alongside you.
- Cut costs quickly and strategically
Once you have a clear picture of your company’s financial position, the next step is to look for costs that can be reduced or eliminated immediately. Focus on changes that will have the biggest impact on your company’s finances without damaging your ability to trade:
- Renegotiate supplier terms or switch to more competitive alternatives
- Review staffing levels and consider whether any roles are non-essential
- Reduce discretionary spending such as subscriptions, marketing spend that is not delivering returns, or office costs
- Consider whether you can renegotiate your premises lease or move to a more affordable space
Be careful not to cut so deeply that you undermine the business’s ability to generate revenue. The goal is to buy yourself breathing room, not to strip the company of everything it needs to function.
- Talk to your creditors
One of the biggest mistakes directors make is avoiding their creditors when they are having difficulty paying. However, in our experience, creditors respond far better to honest communication than to silence.
If your company owes money to HMRC, it may be possible to arrange a Time to Pay (TTP) arrangement, which allows you to spread your tax arrears over a series of manageable monthly instalments.
For trade creditors and suppliers, an honest conversation about your situation can sometimes lead to extended payment terms, reduced balances, or revised agreements. Most creditors would rather receive something than nothing, and they appreciate being kept informed.
- Explore formal company rescue options
If informal negotiation measures are not enough, there are formal insolvency procedures designed specifically to help viable businesses survive a period of financial difficulty:
- Company Voluntary Arrangement (CVA) – A CVA is a legally binding agreement between your company and its creditors. A licensed insolvency practitioner will put together a realistic repayment plan, typically over three to five years, and present this to creditors. If 75% of creditors (by debt value) agree, all creditors are bound by the terms and the payment terms become legally binding. In the right circumstances, a CVA can significantly reduce your debt burden and allow you to continue trading.
- Administration – Company administration involves a licensed insolvency practitioner taking temporary control of your company with the primary aim of rescuing it as a going concern if possible. Whilst in administration, creditors cannot take legal action against the company, which gives the administrator time to develop and implement a recovery plan.
- Restructuring plan – Restructuring plans are a relatively new option introduced under the Corporate Insolvency and Governance Act 2020, which allows companies to propose a restructuring model that can be approved by the court even if some creditor classes vote against it.
Each of these options has specific criteria and implications, and the right choice depends on your company’s unique circumstances. A licensed insolvency practitioner will be able to talk you through your options and help you understand which route is most appropriate for you and your company.
- Get professional advice
The single most important step you can take if your business is struggling is to seek professional advice from a licensed insolvency practitioner. The earlier you do this, the more options will be open to you.
Scotland Liquidators have fully licensed insolvency practitioners across Scotland, here to help you understand your position and make an informed decision about the most appropriate route for your company.
Call Scotland Liquidators today on 0141 278 6330 for a free, confidential consultation.
