How to Avoid Going into Administration as a Business Owner
Taking a business through rough financial seas can feel like choosing between multiple terrible options. While going into administration may not be as bad as going straight to liquidation, it’s definitely not a situation that most business owners will choose to put themselves into.
While it’s sometimes unavoidable, in many cases you may find that there are preferable alternatives that you can try to steer towards instead. These are a few important things to be aware of.
How to Avoid Going into Administration
Of course, the most obvious way to avoid going into administration is to keep your business in good financial health in the first place.
While this is obviously far more easily said than done, it will necessitate keeping your books in good order, making smart investments, and not trying to grow the business at an unsustainable rate.
It might also mean being realistic about when it’s time to call it quits, instead of sinking the company further and further into debt in the hopes that things will change at some point in the future.
Spotting negative trends early on can make it much easier to avoid financial black holes, but as the saying goes, hindsight is 20/20, and these things can be very difficult to see before they actually happen.
Contacting an insolvency professional
If you haven’t managed to avoid financial ill health and your business now needs to get through a tricky period, the first thing you’ll need to do is reach out to an insolvency practitioner from somewhere such as Chamberlain & Co.
They’ll be able to carefully inspect the financial position that your business finds itself in, and suggest potential alternatives to administration. If appointed, they will then potentially be able to guide you through the process, depending on which option is decided upon.
Alternatives to administration
There are a few alternatives to administration for businesses that find themselves insolvent.
Liquidation
If your business has no chance of surviving, then it might have to be liquidated.
This will involve striking the business off from companies house, and then selling off the assets in order to at least partially repay the creditors.
Company Voluntary Arrangement
A Company Voluntary Arrangement (or CVA) can be a preferable solution to administration in some cases. In these kinds of cases, the creditors and the company will be able to come to some kind of repayment arrangement, where debts are repaid over a set period of time.
This will require some level of confidence on all sides in the ability of the business to pass through its current state of financial ill health, and return to profitability.
There are a range of other less common solutions that might also be suitable, and it’s important that you seek expert advice that caters to your specific situation. The decisions that you make at this stage in the process can have massive impacts on your business in the years to come, and it’s imperative that you get things just right.
Q&A: Understanding Business Administration
What does “going into administration” mean for a business?
Going into administration means that a business is struggling financially and can’t pay its debts. An insolvency practitioner steps in to manage the company’s affairs, aiming to repay creditors and potentially save the business from closing down entirely.
How does administration differ from liquidation?
Administration focuses on restructuring the company to try to keep it running, whereas liquidation involves winding up the business and selling off assets to pay creditors.
What should a business owner do if they suspect their company is heading towards administration?
The first step is to consult an insolvency professional. They can assess the situation and recommend the best course of action, whether it’s administration, a Company Voluntary Arrangement (CVA), or another solution.
What is a Company Voluntary Arrangement (CVA)?
A CVA is an agreement between a company and its creditors to pay back debts over time. It’s often a way to avoid full administration or liquidation, allowing the business to keep operating while managing its financial issues.
Are there any other alternatives to administration?
Yes, other options include informal agreements with creditors, refinancing, or seeking new investment. The right choice depends on the company’s specific circumstances and potential for recovery.
Can administration save a failing business?
It can, but it’s not a guarantee. The goal is to stabilize the business and find a way to continue operations. However, if a turnaround isn’t feasible, liquidation might be the final step.
Is it better to act early if financial troubles are suspected?
Absolutely. Early action can provide more options and a better chance of saving the business. Waiting too long can limit these options and lead to more severe outcomes, like liquidation.