There are numerous real-life success stories of business rescue helping to turnaround the prospects of a struggling company. However, in spite of its practical success, there are many misconceptions surrounding the process. In order to put any falsities to rest, we’re busting the top 5 business rescue myths that we’ve heard.
Myth No.1 – It Doesn’t Work
One of the biggest myths surrounding business rescue is that it doesn’t work. How can a failing business suddenly return to profitability? Well, the turnaround certainly won’t be sudden, however the practical application of business rescue methods has a proven success rate for many companies. In order for the process to be successful, there needs to be a realistic chance that the business can become profitable again. In other words, the foundations need to be there for the right strategies to be practically applied. At Ballard Business Recovery, we only suggest rescue strategies to companies that we know have a realistic chance of recovery. We determine this by looking closely at the company’s current finances and structure. Where we do not think there is a reasonable chance of recovery, we will suggest suitable alternatives for the company, such as voluntary liquidation.
Myth No. 2 – It’s Bad For Publicity
One of the main concerns that people have regarding business rescue is that it creates negative publicity. Directors and owners often have concerns that the process will highlight their business’ difficulties, jeopardising their position for future relationships with financial institutions and clients. This is in fact false. Engaging in a rescue plan demonstrates the company’s willingness to be proactive in prioritising the interests of creditors and recovering the company for all members involved. For example, a Company Voluntary Arrangement (CVA) involves working out a payment plan with creditors to organise the repayment of debts over a specified period of time. Where possible, it’s better publicity to recover the company than let it sink into insolvency. Insolvency proceedings are always made public in The Gazette anyway.
Myth No.3 – Business Rescue Advice Is Only For Insolvent Companies
It’s also a misconception that a business rescue expert is only valuable to businesses that are struggling or insolvent. Whilst a business rescue expert will of course implement recovery strategies or oversee liquidation for struggling companies, they can also advise solvent companies. If your company is stable and solvent, however you are concerned about the future, contacting a business rescue expert can help you gain advice on the steps you can take to future-proof your business for a recession or financial turbulence. This is particularly important in the current economic climate where the cost of living crisis and rising inflation is causing a huge amount of worry for company owners . A turnaround specialist can advise you on the steps you can take to place your company in the strongest position possible to combat wider economic strain. Changes such as restructuring your business model, or renegotiating contracts with creditors or suppliers could make all the difference.
Myth No. 4 – It’s Only For The Benefit Of Directors & Shareholders
It’s often misconstrued that a business rescue expert’s only aim is to help benefit shareholders and directors. Rescue methods are in fact creditor led – the whole aim is to look at ways to re-stabilise the company so that it can repay the debts it owes. For example, in a CVA, at least 75% of creditors must vote in favour of the proposal in order for it to go ahead. Recovery strategies are also put in place to help protect relationships with suppliers, as well as to protect employees. Wherever possible, it is a much more favourable outcome for all to save the company rather than seeing it close.
Myth No.5 – It’s Really Expensive
Business rescue proceedings will of course cost money. However sometimes it’s misconstrued that they are more costly than they are worth. The cost of recovery proceedings actually varies widely depending on the nature of the individual company and their circumstances. One of the main benefits of recovery is that the strategies are flexible to different needs. The overall cost will depend on the methods used and what the company requires. In addition to this, many strategies like administration allow the company to continue trading whilst the recovery of the company is facilitated or assets are sold. Equally, closure processes, such as an MVL or CVL come with their own costs.
If you would like to hear more about how business rescue could help your company, please don’t hesitate to get in touch with our experienced team at Ballard Business Recovery for an initial chat.
