Options for struggling SMEs

Challenging times

It’s an unsettling time for small businesses across the country, facing extremely challenging decisions to address rising inflationary pressures on operating expenditure. With the UK still experiencing double digit inflation largely driven by rising energy costs, businesses are faced with limited choices to address these challenges. Those that could fix their costs have done so where possible to mitigate some of the inflationary pressure on overheads. Where this has not been possible or financially viable, SMEs are faced with passing on some or all of the increase in costs to customers. A keen eye on cost mitigation wherever possible is vital and businesses should lean on the support of their trusted advisor(s) to gain valuable insight into the strategies other businesses are implementing. Nationally, we are facing increasing numbers of requests for support from business leaders where the above strategies have been insufficient to meet the rising cost environment.

So what else can be done?

Where advice is taken early, there are a number of strategies that can still be pursued to avoid the failure of a business:

• Commencing a confidential accelerated mergers and acquisitions process to seek a buyer/investor for the business – a new owner may be better placed to exploit untapped value in a business through increased purchasing power, additional distribution channels and existing infrastructure;
• Consider the sale and lease back of property assets to raise capital to fund a restructuring of the business;
• Use the significant experience of FRP to leverage discussions with key customers to improve margins beyond which a business has been able to achieve alone;
• Consider alternative sources of funding where there is an achievable turnaround plan;
• Explore funding and distressed equity options with FRP whilst there is still a business to save.

In some cases, certain business units and locations are simply no longer viable and we support those client companies through their informal restructuring process managing stakeholders as required. It is also the case that once restructured, many of these businesses go onto thrive as competitors continue to struggle to maintain all of their operations. A critical review of a business with support from a trusted advisor really does challenge a business model which is vital to ensure survival.

Where businesses are proactive, despite needing a formal insolvency process to aid their recovery and evolution, it is far more likely that a rescue can be achieved with advice taken as early as possible providing the best prospect of saving jobs and businesses.