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How to Help Your Business Overcome Financial Distress

By March 28, 2022 No Comments
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How to Help Your Business Overcome Financial Distress

THE WORLD IS GOING THROUGH A PERIOD OF UNPRECEDENTED UNCERTAINTY BROUGHT ON BY THE PANDEMIC AND ITS CONSEQUENCES. FOR BUSINESSES AFFECTED, THIS IS HOW YOU CAN WEATHER THE STORM.

When the COVID-19 crisis first emerged in late 2019, few would have accepted such widespread and ongoing disruption not just to our daily lives but the world of business, too.

Almost two years in, the ramifications of the pandemic can still be felt. For business owners, the pressure to not just survive but thrive during this crisis is paramount.

Just how bad is the situation for businesses? We asked Andrea Tam, a senior manager at Perun Consultants, if she had noticed a spike in companies in distress during this time. She said: “Together with government aid and stimulus measures, and degrees of leniency on debts, businesses have appeared to be able to adapt to the recent crisis as a result of the pandemic and effects from the US-China trade war. However, industries that rely on the movement of people and goods, for example in tourism and aviation, continue to experience operational difficulties and cash-flow problems.”

According to Andrea, financial distress is “a condition in which a company cannot generate sufficient revenues or income, making it unable to meet its financial obligations”. But it doesn’t necessarily mean bankruptcy is your company’s only solution. With independent advice, it could be an opportunity to reinvent and restructure your business.

For those businesses that are facing an uncertain future, there are some signals to watch out for that can give you an early indication that things aren’t on track. Some signs your business is in or could be in distress include shrinking business and industry growth, declining profitability and cash flow, difficulties negotiating with suppliers, a high turnover of staff and management, an inability to meet your debt obligations or raise capital, and auditors unwilling to sign off accounts.

They might seem obvious, but for business owners and directors deeply involved in the day to day work, it’s easy to miss or overlook the warning signs. But there are steps you can take to mitigate the harm. Andrea shares some dos and don’ts if you spot any of those red flags.

“Do act early, take actions to perform a financial health check and monitor the situation,” she says. “Act honestly, in good faith and in the best interests of the company as a whole. Be aware of and actively manage the sentiments of your major stakeholders to give the business the breathing space it needs. And be proactive in bringing in an independent, experienced turnaround professional to assess the situation and help maintain control and avoid a crisis, present options and make decisions in the company’s best interest.”

And what are some of things you shouldn’t do? “Don’t act without due diligence or enter into transactions that are or appear uncommercial. And don’t make payments with the intention of preferring any creditors,” she cautions.

Sometimes the best measures you can take is to bring in outside, independent and expert advisors to help you on the right path to recovery. At Perun Consultants, we can provide fresh ideas on how to improve cashflow, reorganise existing processes and systems and execute difficult decisions such as reducing business lines or headcount. Our financial experts can also help you to renegotiate existing obligations, refinance or restructure your debt and help you position the company in the right way to existing and potential lenders and investors.

“Selling underperforming assets in a bad economy is better than allowing those assets to be unproductive,” added Andrea.