Funding a Struggling Business

Many businesses suffer from distress at some point. Should you try to secure extra funding or pursue alternative options?

Raising finance when your business is in stormy waters can often present a number of difficulties. Approaching associates, family and friends can only generate a small amount of capital before directors have to look further afield. You should first consider whether or not it is worth investing in a business that is failing. Would you be better placing your time, faith and money elsewhere? If you engage with an insolvency process to restructuring your company would your available funds go further?

Avoid putting yourself at risk of personal liability if you can. Remember your reputation could be at stake and you may only have one chance to mount a successful rescue. Get the basics right. One of the key factors in obtaining funding is ensuring that you can show that you have made changes to avoid past problems with cashflow.

Before you apply for finance you should check:

  • That you understand what has gone wrong with the business
  • You have a business plan with fully integrated financial forecasts
  • All possible contingencies in your forecasts have been analysed
  • Be sure that the amount of risk involved justifies the potential returns
  • That your co-directors and key advisors agree

Key areas of funding

If more funding is the right course of action then your focus should be on the best way of raising additional borrowing through:

  • Unsecured loans – but placing the funder in a similar situation to other unsecured creditors comes at a high risk and is usually only available for smaller amounts.
  • Asset finance – guarantee any funding through pledging assets owned by the company such as machinery or property. If the asset cover is sufficient this can be very cost effective.
  • Hire purchase – buy vital equipment for the business on credit with a small upfront payment.

Our advice

If you are running a struggling business remember ...

  • Keep regular records of your decision making – should your business become insolvent it is vital that you can justify your actions. Keep minutes of every board meeting and get professional advice in writing from your legal and accounting teams.
  • Remain in control – if your company is insolvent you need to act in the interests of your creditors rather than the shareholders, but do not allow them to dictate unreasonable terms.

Your next step

If your business is distressed you may feel like there is no choice but to close down your company. However, you may still have many other options to return to profitability. In one simple consultation session our recovery expert McTear Williams & Wood Limited could tell you if your business is still viable and give you a number of turnaround. Find out if this is the right step for your business with our free online health-check.

Call now for your free consultation on 0800 331 7418

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