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Tuesday, 7th March 2023

The cost-of-living crisis is currently hammering down on individuals which can be attributed to record inflation, interest rate rises and an increase in the cost of everyday goods, such as oil and fuel. British businesses are also fighting to stay afloat as they are hit by labour shortages and supply chain issues rooted from the Covid-19 pandemic and further exacerbated by the war in Ukraine.

To replenish depleting cash flow and guarantee survival, businesses took on increasing amounts of debts in the form of a Bounce Back Loan, Coronavirus Business Interruption Loan, or alternative finance during the pandemic. Now that repayments to creditors have commenced, how are struggling businesses likely to cope with creditor pressure while they come to terms with the cost-of-living crisis?

Is business restructuring the answer?

The cost-of-living crisis may have branded business models that were once profitable, now unsustainable. If company directors are struggling to maintain their business under the current operating structure due to the increase in overheads – can corporate restructuring provide a solution?

As businesses set out to raise cash for creditors in light of new cash pressures induced by the cost-of-living crisis, they must seek to immediately satisfy creditors until a long-term solution can be sought to nurse the business back to health. Failing to do so could result in putting the business in harm’s way from secured creditors, landlords, trade creditors and HMRC.

A winding up petition often marks the last straw for a business unless a suitable insolvency procedure is entered into to return the business to a position of health. This can take many forms based on the pain point for the business, such as company debts, cash flow shortfalls, late payments and overdue Covid-19 loan repayments.

What is corporate restructuring?

Business restructuring means reviewing the current set-up of a company, taking into consideration the way it operates, how it is legally structured and its financial outgoings. Company restructuring is often carried out by a licensed insolvency practitioner to increase the efficiency of a business and boost company cash flow to help cover essential costs.

Restructuring a company can take many routes, such as:

Refinancing – Refinancing is when an existing debt facility is replaced with another with more favourable terms or the terms of an existing agreement are renegotiated to form a new agreement. Refinancing can sometimes present a more cost-efficient option for the long term.

Streamlining – The process of streamlining a business involves identifying and eliminating inefficiencies by introducing technology and revising methodologies.

Corporate simplification – This involves simplifying the structure of a business by removing any unnecessary complexities. It stamps out any duplication to maximise the cash in the business and ensures that the business grows in a lean fashion to make way for steady growth.

Insolvency – If the business is in financial distress or under pressure from creditors, entering an insolvency procedure can help facilitate the repair of the business, protect company finances and help settle creditor affairs.

By addressing the matter first-hand, corporate restructuring can heal the wound left behind by the pandemic and help businesses stand firm in the face of the ongoing cost of living crisis.

Article Credit: Begbies Traynor