The continuing conflict in the Straits of Hormuz is adding uncertainty to an already challenging economic outlook. Higher oil prices and wider cost pressures may weigh on growth, although their impact will vary by sector and individual business circumstances.
Some businesses are experiencing higher costs, supply chain disruption and more cautious consumer spending, while others may be better placed to absorb or adapt to these pressures. There is no single solution where financial difficulties arise, but acting early and following sound business practices can strengthen resilience, improve viability and help prevent problems from escalating towards insolvency.
In our experience, those key elements include:
- Prioritising cash flow management
- Not allowing sales invoices to become overdue
- Cutting back on all non-essential expenses
- Where appropriate, negotiating extended payment terms with creditors
- Forecasting pinch points and seeking professional restructuring advice in good time
Our restructuring experts regularly see the value of implementing the following 10-point plan at an early stage, when it can make the difference between navigating a difficult period and facing insolvency:
- Strengthen cash flow forecasting
Implement a rolling 13-week cash flow forecast to provide early visibility of potential liquidity pressures. This enables management teams to take proactive action, allocate resources effectively and engage constructively with key stakeholders, including suppliers and lenders, well before issues become critical.
- Prioritise working capital management
Effective debtor management is essential to cash flow resilience. Monitor outstanding receivables closely, maintain regular communication with customers and ensure agreed credit terms are applied consistently. Where accounts become significantly overdue, consider appropriate commercial measures to manage exposure and protect working capital.
- Review cost base and discretionary expenditure
Regularly assess overheads and discretionary spending to identify opportunities for efficiency. This should include reviewing software licences, service contracts and non-essential expenditure to ensure costs remain aligned with current operational requirements and strategic priorities.
- Maintain open communication with suppliers
Maintaining open and transparent communication with suppliers can help preserve strong commercial relationships during periods of financial pressure. Where appropriate, explore the possibility of revised payment arrangements or extended terms to support short-term cash flow requirements.
- Engage Early with HMRC
Where tax liabilities become challenging to manage, early engagement with HMRC is often beneficial. Time to Pay (TTP) arrangements can provide businesses with additional flexibility by spreading liabilities over an agreed period, helping to alleviate short-term cash flow pressures while maintaining compliance.
- Evaluate opportunities for revenue growth
Consider opportunities to strengthen revenues through market expansion, service innovation or product development. Alongside retaining and growing existing customer relationships, identifying new sources of income can improve resilience and support long-term sustainability.
- Align cost structures with operational requirements
Undertake regular reviews of fixed costs to ensure they remain proportionate to operational demands. This may include assessing property commitments, workforce planning and resourcing strategies to identify opportunities for greater flexibility while maintaining service delivery and operational effectiveness.
- Review funding options and capital structure
Assess existing borrowing facilities and explore alternative funding solutions that may better support the business’s objectives. Options such as refinancing, debt consolidation, asset-backed lending or invoice finance may help improve liquidity and enhance financial flexibility. Independent professional advice can assist in evaluating the suitability of available funding options.
- Optimise asset and resource utilisation
Review the balance sheet to identify underutilised assets, surplus resources or non-core activities that could be rationalised. A structured cost-benefit analysis can help determine whether disposal, outsourcing or operational restructuring would improve efficiency and strengthen cash generation.
- Seek advice at an early stage
We know from experience that the earlier challenges are identified and addressed, the wider the range of options typically available. Seeking professional advice at an early stage can provide clarity, support informed decision-making and help management teams implement solutions before financial pressures become more difficult to resolve.
Document and review board decisions regularly
Maintain detailed board minutes that clearly document the rationale for continuing to trade, with discussions and decisions recorded on at least a monthly basis. These records should include current financial information, cash flow forecasts, an overview of the sales pipeline, any cost-saving initiatives considered or implemented, and a summary of the actions being taken to manage the challenges facing the business.
In the event that the company subsequently enters an insolvency process, contemporaneous board minutes can provide valuable evidence that directors were actively monitoring the company’s financial position, considering available options and making informed decisions based on the information available at the time. Maintaining comprehensive records is therefore an important element of good corporate governance and director risk management.
For further information or support on any issue raised in this article, please contact our experts.
