The manufacturing industry is under threat from a variety of pressures – the cost of living crisis, record-high inflation, rising retail rental prices, material shortages, supply chain delays and long-lasting disruption from the pandemic – writes Keith Tully, a partner at business turnaround and rescue company Begbies Traynor, who suggests that, for manufacturing companies short on their quarterly targets, a focused recovery may be the only option to return the business to a stable position …
If your manufacturing business is in decline because of an accumulation of debts to creditors, poor cash flow and a downturn in trade, put a recovery plan in place to prevent company finances from further deterioration.
Disruption to supply chains can delay the fulfilment of orders and create a backlog, along with a disgruntled customer base which may be unaffordable for a business blighted by creditor pressure.
Company restructuring can help the business return to a position of profitability and security. Business restructuring means to shake up the way a business operates to improve efficiency and preserve the cash in the business. The business restructuring route can take many paths, such as: streamlining; refinancing; divestment; repositioning; debt restructuring; and corporate simplification.
Business restructuring is suitable for businesses on any end of the distress scale, as it aims to return the business to a position of strength. From cost cutting and finding more efficient ways to draw money, to simplifying the financial structure of the company, business restructuring can help turn around the fortunes of a business and improve liquidity.
Drawing a line under the business
If there is a possibility that your business is viable, every avenue will be explored for a lifeline. If help is overdue, and there’s no movement with creditors to enter payment negotiations through a Company Voluntary Arrangement (CVA), and there’s no future in sight, the end may be inevitable.
A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure handled by a licensed insolvency practitioner who will oversee the closure of your business and take on the role of liquidator. Company directors of manufacturing businesses must handle the process with care, as there are strict criteria as to what directors can and can’t do. If they’re aware that the business is insolvent, they should cease trading immediately to prevent the financial position of creditors from further worsening.
During a CVL, the insolvency practitioner will take control of the affairs of the company and manage all communications with creditors. All company assets such as stock and inventory will be independently valued and sold to raise money for creditors. After the affairs of the business have been handled and creditors satisfied, the business will be brought to a close.
The key to rescuing a manufacturing business amid a crisis is to seek help in the first instance. Many company directors are guilty of complacency, which can lead to a higher risk of insolvency which can otherwise protect jobs at risk, so as the owner of a manufacturing business, note that time is truly of the essence.