Realizing that you can no longer afford to pay your staff can be an extremely distressing discovery and can cause panic for many business owners. But, itās important to remember that this doesnāt spell the end of your company – if you act fast, there are ways in which you can secure your teamās job roles. The key is to act quickly as you will generally have more options available to you, rather than leaving it too late to make a decision and having to lose staff.
The team at Insolvency Experts have a wide breadth of experience with businesses who find themselves in this very situation. Below, they have rounded up different options you could consider to save you from having to make employee redundancies.
A Company Voluntary Agreement (CVA)
If you can no longer trade due to your historic liabilities or overheads, going down the CVA route could be good for you if the underlying business is viable. A CVA halts any legal action being taken against your business, giving you much-needed flexibility for a limited period.Ā
In order to enter a CVA, a qualified Insolvency Practitioner must agree that it is the most appropriate option after lengthy examination of company finances, as well as ensuring that you will not be paying back more than you can afford.
A CVA is a lengthy legal document that outlines the struggles of your business and what you can afford to pay into the CVA over a number of years. The current limit of payback is a five-year period. You pay all profit you make as a business to the Insolvency Practitioner who distributes this to your creditors.
During the payback period, it is not unheard of that businesses will run into other bumps in the road. This could be an occurrence such as the sudden loss of a customer that was worth the amount of profit your business makes. This can be overcome by modifying the original CVA proposal with creditor support.
Invoice factoring and invoice discounting
In both of these processes, you will be āsellingā your sales ledger to a financing company that, in exchange for a fee, will take ownership of your debtors. These are services most commonly offered by high street banks, as well as a few independent service providers.Ā
Invoice discounting is quite similar to invoice factoring, however, you are still in control of paying your debts. This is a good option for those who wish to protect the reputation of their business by keeping the process confidential.
Asset finance
Although you may be experiencing limited cash flow, you may have valuable assets such as land and buildings. You can potentially leverage these to access much-needed cash. During this process, you continue to retain full use of the assets.
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