If your business is in a desperate situation and your creditors are howling at the door, an IVA could be the one thing that saves you from shutting down. If you know you have a business model that works and could carry on trading successfully if only you could just ring-fence your debts, a formal arrangement like an IVA could suit you.
What are your options?
A lot of businesspeople think that the way of fixing financial troubles is to either cut back to the bone, shut down, or go for broke and bankrupt the company. While all three are certainly legitimate courses of action, they are by no means the best way of dealing with the problem.
Cutting back to the bone
It’s always good business practice to optimise costs wherever possible and not waste money, but some companies go all out and cut back everything to the point where their employees are restricted in carrying out their duties and the company suffers from a lack of investment in infrastructure. This is turn leads to them being out of step and lagging behind their competitors, not to mention losing the skilled staff who see the company in financial trouble.
Some companies have the foresight to keep reserves in place that cover the cost of shutting it down and paying everything off. However, that ignores the potential of the business if it has a good business model and could be putting good staff on the dole. In addition, there is the issue that if the business model is good there is a profitable niche in the market – if the company is not exploiting that then another company will.
Go for bankruptcy
Deciding to go all out and try to trade your way out of trouble may backfire if the debts become so onerous it ends up negating any profits you make, plus when the inevitable happens your suppliers, some of whom you will have worked with for many years, will be out of pocket. That in turn could push them over the edge. Then there’s your staff, who may turn up for work one day and find themselves without a job. Your will be stripped of your ability to run the company and an Insolvency Practitioner will take over.
Using an IVA to support your business
IVAs can be used to help you pay off your company’s debts and trade your way back into profits, but there are certain criteria you must meet in order to have one.
- You must have the forecast turnover to pay the required amount to creditors every month
- The willingness to pay back what you owe
- Full company accounts, including the latest VAT returns, tax returns, and trading accounts
- A credible long-term business plan that can convince creditors that change and profit is possible in the future
There may still be hurdles to overcome. For example, when insolvency is mentioned many creditors automatically block the line of credit the troubled company has, making trading difficult. It will be important for the business owner to be able to negotiate for either the block to be lifted, for a new account to be opened or for a cash account option to be implemented. Only then can the company finally begin to ring-fence its debts and trade it’s way out of trouble using an IVA.
To find out more about IVAs and your business, use our online Debt Calculator.