CVA preparation: how best to prepare your business for a CVA
Because it’s a formal insolvency process, putting forward a CVA requires an insolvency practitioner to agree that your CVA has a fair chance of being accepted and is therefore recommended. As insolvency practitioners, in order to do this, we need to see evidence that you have gone through each of these steps:
Stage 1. Cost analysis review and implementation
Prior to a restructuring, it’s usual for most of your time to be taken up with cash management, and ‘firefighting’. Now you need to make time for cost analysis and implementation.
Review all aspects of your business to see where savings can be made. This should include:
- Finance agreements
- Directors / shareholders
If you can bring finance agreements or leases to an end, or find less costly premises, then now is the time to do that. Bear in mind that any shortfall costs or termination charges will be a debt within the CVA, which will limit the effect on cashflow.
A word of warning though – make sure you check for any personal guarantees before ending leases or finance agreements. If you have given any guarantees, a plan will need to be made to deal with them.
Stage 2. Keep financial information current, and review regularly
Your business is insolvent, and although you are trying to save it, you will have little leeway within your budget for mistakes. To have any chance of success, it’s imperative that you bring your financial information up to date as quickly as possible.
We find the most pressing matters that companies usually need to prioritise are:
- Filing all outstanding tax returns (even if you can’t pay them)
- Updating the aged creditors ledger
- Updating the aged debtors ledger
- Listing all current personal guarantees
From this starting point, you will need to stay in control of the business’ finances. Make sure that you review the following on a monthly basis:
- The bank reconciliation
- Aged creditors schedule
- Monthly management accounts
- Sales pipeline
- Debtors control ledger
Cash control is essential – direct extra resources to your debtors control. This can be done either in-house or use a specialist debt collection service for the more difficult debtors.
Stage 3. Prepare a business plan
You have cut costs where possible, you have brought your financial information up to date, and are starting to more closely monitor your management information, so what next?
Plan for the future. Draft a business plan. Prepare projections for the company’s profit & loss and cashflow for the next 2 years, taking account of any reductions made, and being conservative with sales.
Once you have done this, you should have a much clearer idea on where the business is heading. Date and amounts for future cash requirements should be more obvious, and you’ll be able to properly consider how much you could afford to offer creditors.
Stage 4. Review ALL options with an insolvency practitioner
Make an appointment with an insolvency practice (employing licensed insolvency practitioners). Hopefully you will decide to work with us; if you would like to see how we operate, book an appointment and we’ll take you through the process of cva preparation in more detail, specific to your business.
Insolvency practice Vs insolvency consultant
Even if you don’t use us, we do advise that you employ another insolvency practice. Be sure not to choose a middleman business. They will usually refer to themselves as insolvency or recovery consultants, or similar. There is no need to pay these people for what you can get for free from an insolvency practice. Even those that don’t charge you an upfront fee are paid for your referral by whoever they pass the work to. This is a cost which eventually makes its way to you.
As an insolvency practice, our practitioners are licensed, and our case managers are all qualified insolvency technicians or trainees. We are actively regulated, and have comprehensive professional indemnity insurance should anything go wrong. Be wary of unqualified, unlicensed, unregulated, uninsured middlemen.
Explore all your options
Once we have reviewed the financial situation and discussed your business plan, we will be able to give you an appraisal on all your options – this will include non insolvency options as well.
Our review would prioritise your options in the following order
- Informal Arrangement with creditors
- New funding
- Company voluntary arrangement
- Liquidation / Administration (with sale of assets to a new company set up by you)
- Liquidation (stop trading and shut down)
Within the options, we would also comment on the effect these have on:
- Personal guarantees
- Finance agreements
- Reputation / goodwill
- Ongoing legal actions
- Supplier contracts
- Customer contracts
There are likely to be two or three options that stand out for your business. Ask us for a comparison analysis and cost illustration of the preferred options – it will help you make your final decision.
As we are able to assist with any of the above 5 options, you will find that our advice will be led solely by what will work best for you and your business.
Hopefully having taken your business through the process of CVA preparation, you can avoid the need for a formal insolvency process at all. However, if you have concluded that a CVA is the way forward, and you would like to get the ball rolling, please contact one of our business rescue experts.