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Finance in the spotlight - Restructuring your finances

Many businesses have felt the impact of COVID-19 and been forced to resort to the financial support packages provided by the Government. As the country begins to open up and transition into, a post-pandemic economy, businesses must prepare for life where Government support is more limited.

Philip Hargreaves, GC Business Growth Hub’s Head of Access to Finance, explores the ways businesses can restructure their finances when planning their COVID-19 recovery.

The Government’s COVID-19 support schemes have provided much needed support to businesses during the pandemic. Access to financial support has helped many businesses survive this period, creating an artificial environment which some businesses have relied upon to survive. With the end of lockdown now in sight, this creates a challenge for businesses who might need additional working capital to relaunch in the coming weeks and months. A potential solution is to consider restructuring finances.


Post-pandemic planning

Business recovery and post-pandemic planning will be a top priority for our clients as well as intermediaries and the insolvency and turnaround specialists we work with.

The impact of the COVID-19 pandemic has been immense on businesses, with many facing the reality of an uncertain and vulnerable future. Market disruption has resulted in significant impairment of SME balance sheets as profitability declined, cash reserves have been exhausted and debt levels increased

Many businesses have sought stability through the support of Government schemes such as the Coronavirus Job Retention Scheme, Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme. However, even with the forecast economic recovery, businesses will still need access to vitally important working capital.


Restructuring to create growth

To mitigate this risk, financial restructuring is a potential solution. There is already clear evidence of restructuring activity in the hospitality, retail, transportation, and travel sectors.

A number of restructuring options are available for businesses to avoid uncontrolled insolvency.

Options businesses could consider are:

  • Debt restructuring (Pay as You Grow scheme)
  • New funds injection (Equity – Business Angels, Debt – UK Government Recovery Loan Scheme, Refinancing Balance Sheet assets, Revenue Based Funding)
  • Converting existing debt for equity
  • Controlled insolvency process (CVA)

These are often complex transactions and I urge any businesses considering these options to seek appropriate professional support. The GC Business Growth Hub’s impartial independent and fully funded Access to Finance service is ideally positioned to facilitate appropriate introductions and guidance.


Five steps to a successful restructure

1. Recognise and accept the reality of your situation and avoid the risks associated with denial. It is important to engage openly and honestly with stakeholders and trusted advisors as soon as possible.

2. Clearly articulate any internal actions you have taken or intend to take in a robust and realistic update to your business plan.

3. Conserve and create cash. Most businesses have already undertaken drastic measures to preserve cash in their initial response to the pandemic. A longer term ‘cash culture’ across a business is critical to supporting ongoing operations.

4. Embrace many of the changed working practices and processes that have emerged from the pandemic. Many businesses have a unique opportunity to not only evaluate and adapt business models but also to re-evaluate how products and services are positioned and delivered. The pandemic has highlighted how co-operation and collaboration can remove operating barriers and access to new customer or user bases.

5. Ensure you have a plan to retain the talent within your organisation. The pandemic inevitably led to reduced employment mobility. However, the recovery potentially offers expanded opportunities as businesses adapt to the new ‘normal’.


The original version of this article first appeared on GC Business Growth Hub's website

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