When people hear that an insolvency practitioner (“IP”) is involved with a company, it is usually in relation to something akin to the recent failure of national chain British Home Stores. But do we spend all of our time making employees redundant and selling off assets? The answer is a resounding no. However, the “other side” to an IP’s work rarely gets any public attention.
There is no question that our training and qualification process instils a mentality to deal with financial distress. However, the vast majority of IPs ply their trade in accountancy firms, meaning a combination of skills can be brought to the table to offer constructive, positive advice to businesses that seek that advice at a stage that offers the rarest commodity in distressed scenarios – time.
Sometimes cashflow is tight due to a change in the business model needing to be reflected in how the business is financed. For example, key customers imposing longer payment terms or a change in regulation/legislation requires additional compliance costs which cannot easily be passed onto customers. Whilst the presentation of a proposal to existing/new financiers is something well within the domain of, say, a Corporate Finance department, perhaps the position is so time-critical, that business failure might result from a delayed injection of funds? IPs can add an additional point of view – what is the potential outcome for financiers if things do not go as predicted? Providing the comfort of an expert sensitivity check to such proposals, can be the difference between an early, positive response and a delayed, negative response.
Independent Business Reviews
Such reviews are often instructed by lenders, when there is a concern over the viability of the business in the short term, and so a risk to that lender that their exposure is irrecoverable in an insolvency scenario.
However, an independent review of the immediate projections for a business could be extremely useful for the business itself. When times are tough, it can be very difficult for business owners to remain dispassionate and
look at their business’ performance without adding in a splash of optimism. It is that splash that can lift a business to achieve new heights in the right circumstances. However, it can be that same splash that stops the over optimistic owner taking action to resolve issues before they become the cause of business failure.
IPs provide a dispassionate view on projected performance, allowing any pinch points in the projected period to be identified and a plan put in place to deal with them beforehand, rather than firefighting the issue when it arrives, or potentially worse.
These are just two examples of where professional advice, coupled with the expertise of an IP, can deliver positive outcomes.
And you thought we were just corporate undertakers…?