If your business is struggling with financial issues, it’s easy to think that you’re facing the beginning of the end. However, while financial issues should be dealt with swiftly and properly, they do not mean that your business has come to the end of the line. If it is financially viable yet burdened by unsustainable levels of debt that are impossible to pay back now, you could utilise a Company Voluntary Arrangement (CVA) to avoid going into liquidation.
A CVA is a formal insolvency process where a business reaches an agreement with its unsecured creditors to either pay off part of its total debts or all of them in instalments within an agreed timeframe. As long as the CVA is in effect, the business usually continues to operate normally.
So how would you know if a CVA is right for your business? Below are five signs that a CVA could potentially save your business.
1. Your Main Operations Are Still Profitable
A CVA is meant to assist businesses that have a reasonable chance of being profitable again. In these cases, your business may have a solid client base, consistent demand and a profit-making core business, but previous debts or a recent downturn in trading may have placed enormous strain on your cash flow.
If the company’s original business plan remains valid and projections show that the company will be able to run effectively once its debts are restructured, a CVA may provide you with the necessary breathing space to get back on track.
2. Your Current Progress Is Being Impeded By Past Debts
At times, it is not present-day problems which cause the biggest financial problem, but rather the accumulation of debt during previous periods of poor trading. Even though things begin to improve and profits rise, the effort required to meet both historic liability payments and normal ongoing operational expenditure can create severe pressures on cash flow. A CVA can bring together qualifying unsecured debts in an agreed settlement, allowing the company to make fewer and less onerous monthly payments.
3. Creditor Pressures Are Becoming Unmanageable
Increasing creditor pressure is one of the most obvious warning signals that your business needs immediate attention. A CVA provides an established framework for settling your outstanding debts with creditors rather than negotiating individually with each creditor. The agreement, once accepted, binds all participating creditors and obliges the company to make regular payments. It is crucial to act quickly because waiting for creditors to enforce their rights severely reduces the options available for rescuing your business.
4. Cash Flow Issues Are Stopping Your Business Development
Delays in customers paying you, sudden costs, seasonal fluctuations and large amounts of previous liabilities can all prevent businesses from having sufficient, easily accessible funds to meet their obligations as they become payable. If your business was capable of successful trading with more predictable monthly debt repayments, a CVA may provide a means of moving forward. Restructuring your existing liabilities should provide more stability in relation to your outgoings and enable your management team to focus on improving your overall financial position.
5. A Temporary Setback Is The Cause Of Your Financial Problems
Sometimes, otherwise viable companies experience difficulties because of a temporary setback, such as the loss of a major customer, an unexpected increase in costs, late payments from clients or a short-term decline in demand.
If the cause of your financial problems has been identified and addressed, but the debts accumulated during that period are preventing the business from recovering, a CVA could provide a route forward. By restructuring qualifying debts into more manageable repayments, the company may have the opportunity to regain stability and continue trading.
Is a CVA Suitable for Your Business?
A CVA can be an effective rescue strategy, but it won’t suit every situation. If your company is suffering from increased creditor pressure, securing guidance as soon as possible is vital. Get in contact with us at Ballard Business Recovery to find out how we can help you with your business’s financial difficulties, including assistance with setting up a company voluntary arrangement.
