When Should a Company Use a Business Rescue Plan?

January 16, 2024 / FAQs

A business rescue plan can be a lifesaver for struggling companies. It can help restore a company to profitability. For some companies, business rescue will take the form of advice and a thorough examination of a company’s finances. For others, business rescue will be more extensive, taking the form of selling off unprofitable parts of a company, or an administration procedure. There are many different strategies under the category of business rescue, and they must be implemented at the right time to be effective. This raises the question – when should a company use a business rescue plan?

In this article, Clarke Bell will discuss business rescue procedures, how they can benefit a company, and when a company should employ such a procedure.

What is business rescue?

Business rescue is a broad term, referring to a way of getting a company back on track. An insolvency practitioner (like Clarke Bell) can be brought on board by the company’s directors to help draft and implement the business rescue plan. For example, a company struggling with a tight cashflow and steadily mounting debts might be best served by a careful analysis of its finances, with a review to cutting unnecessary costs and focussing on profitable areas.

Types of business rescue

Even if they share an industry, it is rare for two companies to be the same. Two companies might have a slightly different target audience, invest in different stocks, emphasise different services, and have a different company ethos. Due to these differences, and many more, business rescue must be flexible and tailored to a company’s particular situation. As such, business rescue is an umbrella term, including a variety of potential solutions. These solutions include the following:

  • Advice – Most insolvency practitioners will offer advice before, during, and after the business rescue process. This advice will include an overview of the company’s options, what might work and what might not. In some cases, this advice is all a company needs to get back on track. In others, a more hands-on approach by the insolvency practitioner will be needed.
  • Examination of company finances – Another common service provided by insolvency practitioners is a thorough examination of a company’s finances. An insolvency practitioner will specifically be looking for areas of high profitability for the company to focus on, as well as any wasteful or unnecessary expenditure. Depending on the results of this examination, the insolvency practitioner will suggest how the company can improve its profitability, or suggest more extensive procedures if necessary.
  • Restructuring – If a company has debt issues without a simple solution, restructuring is a potential method of business rescue. It can encompass several key actions, including a change in operations, the discontinuation of unprofitable goods or services, bringing in new leadership, and the sale of parts of the company. A mixture of these and more will be employed depending on a company’s situation.
  • Company administration – Should a company be found to have significant financial issues, though it still has a good chance of solving them, company administration may be on the table. Administration often involves the sale of part or all of a company, and can sometimes take the form of a pre-pack administration. In short, this is a form of administration where a deal to sell the company is agreed upon before the appointment of an administrator.

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When is it best to use a business rescue plan?

Business rescue plans can certainly be a good solution to a company’s financial problems, but it can only be truly effective if implemented at the right time. Cost-cutting measures don’t count for much if implemented well after a company’s spending has caused significant amounts of debt to accrue, for example. However, while proper timing is essential for a business rescue attempt to be successful, it isn’t always obvious when this attempt should be made.

Broadly speaking, business rescue is an option best used once a company has begun to decline. In this scenario, a business rescue plan can nip the problem in the bud, stopping the situation from spiralling further and ensuring the company does not face too much disruption. If you are unsure whether your company should use a business rescue plan, consider the following signs:

  • Sales have stagnated or declined – If you notice a downward trend in your company’s sales, you may have underlying issues that a business rescue plan can alleviate. While a temporary drop in sales isn’t necessarily something to worry about, a prolonged sales drought will damage your company’s finances over time.
  • Cash flow is overly strained – A constrained cash flow is disastrous for a company. It makes a company rigid, unable to respond to unexpected costs and greatly diminishes growth. While companies generally shouldn’t have too much unused cash, having nothing to work with hints at problems. Using a business rescue plan can help you find these problems before they catch you off guard.
  • Growth has stagnated or declined – Companies need to grow to remain competitive and profitable. If your company’s growth has stagnated, a business rescue plan can help you identify possible causes before it experiences a decline. In this case, business rescue can be more of a prevention than a cure.
  • Your company is no longer profitable – If your company has more money flowing out than in, it’s only a matter of time before it becomes insolvent. Insolvency is a serious problem for a company, marking the end for many that were once successful. A business rescue plan can help get your company back on track while it still has capital to work with.

Clarke Bell can help

Experiencing financial stagnation or decline is never ideal for a company and its directors. Such a scenario can easily cause damage to a company in the short term and, if left unchecked, can lead a company to the edge of insolvency. To avoid the situation from spiralling out of control, a business rescue plan can be implemented.

Clarke Bell can help you with this task.

We have more than 29 years of experience in helping companies find the best possible solutions to their financial problems. We can do the same for you. Our team of experts will work with your company to create a tailor-made business rescue package, ensuring your company’s needs are put first.

Don’t hesitate to contact us today for a free, no-obligation consultation to find out exactly what we can do for you.