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Banks, Lenders & Investors Business Development & Marketing General

Crowd Funding has a Key Factor that makes it Attractive to Firms Seeking Cash

The plethora of Government initiatives designed to stimulate lending to small enterprises and StartUps, seem to have mainly sunk without trace as the economic meltdown continues.
From Project Merlin, via the National Loan Guarantee Scheme and others including the latest initiative, Funding for Lending, they have largely been ignored by both banks and companies.
Throughout the downturn the banks have said they are willing to lend, and most commentators have claimed there is no shortage of finance, however business lending has continued to decline.
There seem to be two main issues that have caused the decline, firstly the banks are more cautious and want both security for the loans and business plans that demonstrate they will be repaid, and secondly companies remain uncertain with few applying for loans unless they are in financial difficulties.
Similarly investors have been somewhat absent from the market. Many have already been wiped out leaving those with cash very wary.
Despite the tax relief incentives offered under the Enterprise Investment Scheme (EIS), and for StartUps, the Seed Enterprise Investment Scheme (SEIS), there has been little interest. This lack of appetite can be explained by the stringent pre-qualifications. In the case of StartUps, SEIS investors may qualify for 50% tax relief on up to £100,000 however the HMRC guidance notes may help explain why no one is excited: http://www.hmrc.gov.uk/seedeis/index.htm
There has however been much excitement over a newer funding alternative called “Crowd Sourcing” or “Crowd Funding” since the launch of the UK version of the US enterprise Kickstarter on 31 October 2012.
While Crowd Funding may prove to be a good option for many firms, StartUps in particular should do their research. Kickstarter, for example, is restricted largely to creative projects that have a defined beginning and end and its website clearly states: “Starting a business …does not qualify as a project.”
This innovative type of funding is becoming more common. There are already several finance providers each with its own criteria and the number is likely to grow as investors and lenders put up more cash.
The Crowd Funding providers appear to have one common factor that makes them attractive to firms seeking cash. They make it simple to apply for finance, whether debt or equity.

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Banks, Lenders & Investors Business Development & Marketing Factoring, Invoice Discounting & Asset Finance General

Is the Economic Recovery Being Imperilled by Banks’ Continued Failure to Lend to SMEs?

Despite government rhetoric, evidence continues to pile up that the banks are still not lending to Small and Medium-sized Enterprises (SMEs).
We are hearing that when companies apply for any lending the banks are only considering loans or overdrafts secured on tangible assets, with most also demanding personal guarantees from the directors in addition.
Total net lending by the UK’s five main banks fell in 2011 and they missed their lending target to small firms, whose use of bank overdrafts and loans has also declined over the past two years.
The FSB reports that of 11,000 SMEs just one in 10 obtained a bank loan in 2011 and that 41% of applicants had been refused loans in the three months to February 2012. The FSB believes the UK banking system is not geared up to lower end loans of less than £25,000, because “there’s no money in it”.
Business Secretary Vince Cable has warned that recovery is being imperilled by the “yawning mismatch” between bank lending and SME demand for finance and at the end of April economists at Ernst and Young predicted that they expected lending to reduce further this year by 6.8 per cent, to £419 Billion.
Meanwhile invoice discounting and factoring have increased significantly, though banks are seemingly no longer offering these facilities, leaving the door open for independent companies such as Bibby, Close, Centric, SME, Ulitmate and the new British bank, Aldermore.
Are the banks struggling or are they simply withdrawing from the SME market?
We think the banks are being deceitful. Whatever the rhetoric, they are using PR tactics to report new loans, which are in fact not really new lending but the refinancing of existing facilities such as turning an overdraft into a term loan or a factoring facility.
This is piling even more pressure onto small businesses because there is a net decline in the flow of money into SMEs, and furthermore any new money is being provided at a very great cost in terms of fees and interest. While high rates of lending may be justified by the risk when it is unsecured, it is not justified when the loan is secured.
K2 would be very interested to hear from SMEs that have managed to secure a bank loan.

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Banks, Lenders & Investors Cash Flow & Forecasting Debt Collection & Credit Management Factoring, Invoice Discounting & Asset Finance General Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Businesses Should Pay Down Debt and Beware Offers That Seem Too Good to be True

Many businesses are overburdened with debt and desperate for ways to deal with pressure from banks, HMRC and other creditors. All too often they are prepared to pay off old debt by taking on new debt which leaves them vulnerable to unscrupulous lenders.
Prior to 2008, interest-only loans and overdrafts were a common method of funding, and were reliant on being able to renew facilities or refinancing.
Like many interest-only loans, an overdraft is renewed, normally on an annual basis, but it is also repayable on demand. What happens when the bank doesn’t want to renew the overdraft facility?  With the economic climate continuing to be volatile and uncertain and banks under intense pressure to improve their own balance sheets, they are increasingly insisting on converting overdrafts to repayment loans and interest-only finance is disappearing.
This has created a vacuum for alternative sources of funding to enter the market where distinguishing between the credible salesman and the ‘snake oil’ salesman can be very difficult. Desperate businesses are desperate often try to borrow money and become more vulnerable to what at first sight seem to be lenders that can offer them alternative funding solutions that the banks cannot.
Generally the advice is to beware, as the recent eight-year prison sentence handed to “Lord” Eddie Davenport illustrates.  The charges related to a conspiracy to defraud, deception and money laundering, also referred to as “advanced fees fraud”. 
The court found Davenport and two others guilty in September. Meanwhile a large number of businesses had paid tens of thousands of pounds for due diligence and deposit fees for loans that never materialised and left victims even deeper in debt. The case only became reportable in October, when restrictions were lifted.
Many businesses just want to survive and are trading with no plan or in some cases no prospect for repaying debt. In such instances they should be considering options for improving their balance sheet by reducing debt. Options might include swapping debt for equity, or debt forgiveness by creditors or setting up a CVA (Company Voluntary Arrangement).

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Leadership, Restructuring and the Eurozone

The Germans and other northern members have benefited from the Euro effectively fixing the exchange rate that has made it easy and relatively cheap for them to sell their cars etc to southern members to whom they lent money to buy their cars. This is very similar to the banks lending money to customers who spent it.
The issue then is who takes responsibility for the debt and managing the Eurozone fallout. Do lenders write off debt, or do they lend more such as via Eurobonds or Quantitive Easing (QE) with terms that impose huge penalties. This latter route is similar to the reparations that planted the seeds of the second world war, a subject that has recently been put on the table. Or do lenders defer payments that allow for a fudge whereby loans are repaid over an extended period that effectively allows inflation to devalue the loans.
The UK has opted for the fudge route and will avoid banks defaulting through QE, low interest rates and using inflation to reduce the cost of repaying debt. While most borrowers will benefit, those with assets, savings and reserves will see them devalued while the debt overhang is cleared. Although this is regarded by many as a mistake, we saw in 2007 and 2008 what happens when banks default and are right to avoid bank defaults.
Europe however has yet to find a solution whether it is by managing southern member defaults, or providing more loans to avoid default. The problem facing European leaders is that they need to be strong and stand up to their electorates if the lessons of history are to be applied.
While European leaders find their backbone, in UK our political leaders are looking decisive, a tribute to both Darling and Osborne. Inspite of the decisions taken it will still take a long time to clear the debt overhang with a floating exchange rate and inflation to reduce debt and low interest rates to smooth the way.
Most UK companies that have undergone restructuring have much stronger balance sheets and are building reserves ready to take advantage of the Eurozone fallout. However there are still many more UK companies, that like many European members, have weak balance sheets and continue to struggle while they and their lenders put off the inevitible restructuring.

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General Rescue, Restructuring & Recovery Turnaround

Bring Back Pride in Non-Academic Skills

August may traditionally be the “silly season” but last month the news did not stop rolling with turmoil on the world’s markets, the A level results and furious debates about the causes and consequences of the UK riots.
We argue that it is time for some joined-up thinking, as there is a connection between the three.
First, the markets: growth, even in the EU’s so-called engine of growth, Germany, was revealed to be near-stagnant in Q2 and UK Growth has been near stagnant for the last three quarters. The UK unemployment figures for the same quarter rose by more than 38,000 and the youth unemployment rate rose to 20.2%, from 20%. All this has prompted fears of a double dip recession, a return of pessimism among UK employers and turmoil on the markets.
Economic recovery is supposed to depend on manufacturing, exports and crucially growth in the UK’s small business sector. However, a new British Chambers of Commerce survey of 2,200 SMEs employing fewer than 10 people, has revealed that while more than 55% were actively recruiting, they were held back by a lack of sufficiently skilled applicants and only 22% said they would feel confident that a school-leaver with A-levels or equivalent would have the necessary skills for their business.
Secondly, following the A level results, it was revealed that approaching 200,000 candidates were seeking a university place through clearing and only an estimated 30,000 places were likely to be available. What happens to those who are unable to get a place?
Finally, the riots and their causes: as the culprits have been wheeled through the courts it has become clear that the overwhelming majority have been under the age of 25, half of them under age 18, and all living in some of the most deprived areas of the country, young people who are unlikely to go to university but, worse, have little hope of acquiring the skills they need to get any kind of job.
K2 argues that the focus of successive governments on pushing more and more young people through university has devalued both the degree itself and the more practical vocations and trades on which economic recovery depends.
According to the REC although more than 250,000 apprenticeships were created in the last financial year this figure includes a big increase in short-term apprenticeships – often taken up by those already in employment and a greater number of these positions have gone to the over 25s. training and being used as a source of cheap labour.
Career advice for young people has also all but disappeared. New figures published by the public service union UNISON showed only 15 out of 144 councils still run a full careers service after implementation of government cuts.
The most crucial need is to restore the pride and aspirations of those young people who perhaps would not benefit from a university education so that they believe that they can both earn a living and use their practical skills to contribute to economic recovery and growth.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Small Business Marketing Needs Innovation and Commitment

It is a natural reaction in tough economic times for businesses to look at their various activities and identify costs that can be cut back.
One area they traditionally prune is the marketing budget but this can be counter-productive for small businesses that need to protect their sales revenue, retain existing customers and keep the orders coming in.
A business rescue adviser brought in to help a company in difficulty will closely examine spending and in the process help develop a new business plan which will include innovative marketing aimed at generating sales at a lower cost.
In situations where a number of businesses are failing a small business also has to think carefully about remaining visible or risk potential and actual clients assuming that it has ceased trading and look around for an alternative supplier that has remained visible.
There is some evidence that small businesses are becoming highly innovative about their marketing. Instead of employing an in-house marketing team, for example, they are outsourcing their marketing and buying services only as and when they need them.
Joining a business networking club is one example of a cost effective trend that has been growing for some time.  But it is not a short term fix and many businesses leave it too late, joining only when they realise they are in trouble.
Networking needs commitment and it takes time to get to know the other businesses represented and understand exactly what they do. It works on the truism that ‘people buy from people’ and there needs to be trust as well as synergy.  This is unlikely to happen in less than six months of becoming a member of a club.
Too often people frantically try to sell their services rather than listening and learning about the other businesses in the club. It is vital to follow up with every member once you have joined and learn more about each other even if you can’t immediately see any synergy.

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Banks, Lenders & Investors Factoring, Invoice Discounting & Asset Finance General Rescue, Restructuring & Recovery Turnaround

It is obvious why Bank Fees are High and Business Lending is so Difficult

The figures for January to March showed a shortfall of 12% against the £19bn that represents a quarter of the annual £76bn target agreed with the government under the Project Merlin scheme for lending to smaller businesses.
Only 16% of FSB members had approached banks for credit and 44% of those had been refused, including some seeking credit to fulfil firm orders.
Growing businesses need working capital to fund the goods, materials, marketing and staff for new growth. While some of that can be obtained by borrowing against the sales ledger (through factoring and invoice discounting), the banks are seeing them as too high risk.
This is actually a reasonable response by the banks where businesses have been clinging on by their fingernails since the 2008 recession and, having used up most of their working capital on paying down old loans, are therefore according to the bank models seen as at high risk of insolvency.
It is a vicious circle. Less working capital means businesses neither have sufficient funds to buy materials to fulfil orders nor are they adequately capitalised to justify new loans.  This is why it is very common for businesses to go bust when growth returns following a recession.
Once banks are realising that a company with outstanding debt is in difficulty, they are providing for the bad debt by adjusting their own capital ratios to cushion against increased risk and in anticipation of the new Basel lll rules requiring bank Tier 1 capital holdings (equity + retained earnings) to rise from 2% to 7% to be phased in from 2015 to 2018.  
The result is higher fees and higher interest rates to businesses and it is no surprise that some companies already seen as a bad risk cannot borrow money, even when orders are rising.
Businesses that have used their land and buildings to secure loans or mortgages may also face huge risk related costs due to the bank’s exposure because banks already have so much commercial property as security that cannot be either leased or sold. The bank will therefore impose penal fees in a bid to recover the provisioning costs.
It has never been more urgent for businesses to mitigate this catch 22 by calling on expert help to look at fundamental solutions and recognise they will not be able to borrow money to limp along as they have been for the last two years.

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Cash Flow & Forecasting Debt Collection & Credit Management Factoring, Invoice Discounting & Asset Finance General Rescue, Restructuring & Recovery

Do Small Businesses Understand Working Capital and Liquidity?

When borrowing against current assets, such as the sales ledger using factoring or invoice discounting or against fixed assets like plant and machinery or property, there seems to be a widespread misunderstanding among businesses about business funding and, in particular, working capital.
While credit is the most common form of finance there are many other sources of finance and ways to generate cash or other liquid assets that provide working capital. Understanding these is fundamental to ensure a company is not left short of cash.
Businesses in different situations require finance tailored to their specific needs. Too often the wrong funding model results in businesses becoming insolvent, facing failure or some degree of painful restructuring. In spite of this, borrowing against the book debts unlike funding a property purchase is a form of working capital.
Tony Groom, of K2 Business Rescue, explains: “Most growing companies need additional working capital to fund growth since they need to fund the work before being paid. For a stable business where sales are not growing, current assets ought to be the same as current liabilities, often achieved by giving and taking similar credit terms. When sales are in decline, the need for working capital should be reducing with the company accruing surplus cash.”
Restructuring a business offers the opportunity of changing its operating and financial models to achieve a funding structure appropriate to supporting the strategy, whether growth, stability or decline. Dealing with liabilities, by refinancing over a longer period, converting debt to equity or writing them off via a Company Voluntary Arrangement (CVA), can significantly improve liquidity and hence working capital.
While factoring or invoice discounting, like credit, are brilliant for funding growth, businesses should be wary of building up liabilities to suppliers if they have already pledged their sales ledger leaving them with no current assets to pay creditors.

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Business Development & Marketing Cash Flow & Forecasting General Rescue, Restructuring & Recovery

Saving the High Street

Retail pain continues with the news that Mothercare is to close a third of its 373 UK stores.
JJB Sports has just announced losses 0f £181.4 million for the year to 30 January 2011, three times the previous year’s loss of £68.6 million and plan to close 89 of their 247 stores over the next two years.
And HMV has just had to sell Waterstone’s for £53 million to pay down some of its £170 million of debt. In addition, they also propose to close 40 stores.
Oddbin’s too, has gone like most other wine retail chains, following its failed attempt to agree a restructuring plan with creditors, which was rejected by HMRC.
Plainly there is a major earthquake taking place on the High Street, and it is not all about cutbacks in consumer spending. More importantly retail purchasing is changing. Consumers are becoming sharper shoppers by looking elsewhere, not just in the High Street.  They are visiting dedicated retail parks combining shopping and leisure to offer an experience, entertainment and convenience in one place and are also increasing their online spending.
The government has recently asked Mary ‘Queen of Shops’ Portas to take a look at the country’s High Streets and come up with suggestions for rescuing them, clearly hoping to find a way of rejuvenating this part of the UK economy.
She may well conclude that the competition from shopping and leisure centres with their easy access via car and public transport is too much and that the High Street can survive but only if it offers something different.
Locals still like to buy from local shops that provide a personal service, ideally selling local produce such as farm-sourced. This ought to support retailers like the grocer who lets you taste a piece of cheese before you buy, independent butchers who will advise, trim or even marinate meat and local bakers. Pubs, restaurants and cafes that cater for families, young people, the elderly all play their part in supporting community, even the self-help run library. But for the High Street to avoid further decline, everyone needs to work together and this will require leadership.
You never know, the High Street may be once again be a place where shopping is an enjoyable experience, but what will it look like?

Categories
General Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

First decline in household income for 30 years causes pain on the High Street

The Office for National Statistics (ONS) reported recently that in 2010 real household disposable income fell by 0.8%, its first drop since 1977.
A plethora of profit warnings from major high street retailers is therefore no surprise. JJB successfully agreed a new Company Voluntary Arrangement (CVA) for repaying debt, just two years after its last one. Oddbins’ attempts to agree a CVA were rejected which led to it going into administration.
Meanwhile travel company Thomas Cook announced a 6% fall in holiday bookings from the UK. Dixons announced that it was cutting capital expenditure by 25%. H Samuel and Ernest Jones, Argos and Comet all report falling sales. Mothercare is to close a third of its 373 UK stores and HMV has just sold Waterstones for £53 million to pay down some of its £170 million of debt.
Falling consumer confidence, the Government’s austerity measures and rising commodity prices have led to a steady erosion of disposable income. An April report indicated an increase in retail sales, up 0.2% on February’s, but this was attributed to non-store (internet) and small store sales and probably conceals a continued decline in High Street sales.
After a few years of expansion fuelled by debt, it is entirely logical that the marketplace is now facing a sharp contraction as consumers spend less money while they are concerned about their job security and repaying their huge levels of personal debt.
Many companies need to contract and reduce their cost base if they are to survive. For the High Street retailers this means concentrating on profitable stores and reviewing strategy.
Growth is likely to involve developing experience based retail outlets in dedicated shopping environments or direct sales such as online. The High Street has failed to reinvent itself and the recession has accelerated its decline.

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General Rescue, Restructuring & Recovery Turnaround

The Current Conundrum Over Inflation and Interest Rates

The most recent inflation rates show that the Consumer Price Index (CPI) has risen to 4%, a surprise drop of 0.4% from February and the Retail Price Index (RPI) to 5.3%, also a fraction less than February’s 5.5%.
If times were normal these figures would nevertheless trigger a rise in the interest rate to 7 % to 8%, about 2.5% above the RPI.
However, times are still clearly not normal following the financial “tsunami” that was the 2008 Great Recession. Many businesses are still struggling to survive and grow in the face of reduced spending by consumers and clients and cope with soaring materials and commodity prices and volatile oil prices because of uncertainty over events in North Africa and the Middle East.
As a result the fear that an interest rate rise might push the economy back into a recession has led to interest rates being decoupled from inflation.  Inflation is a form of currency devaluation.  It means that every £1 buys less than it did when inflation was lower.  Interest rate rises help to correct this. 
I would argue that currently many businesses are operating with huge levels of debt and not doing all they could to reduce even though they can only survive because interest rates are currently so low.  But this current situation is only temporary.
While a viable business should be able to build a surplus of cash in this situation to provide itself with a cushion once interest rates start to rise again, a business in difficulty will not have this option. It therefore needs to think ahead and revamp the business model and restructure to survive and be ready for to what will happen when things are more “normal”.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Will Project Merlin Make any Difference to Business Lending?

With so many companies in financial difficulties will many companies be able to take out further loans as a result of the new agreement known as Project Merlin?
The government last week announced that it had reached agreement with the UK’s four biggest banks to increase the amount of new lending to business in 2011 to a total £190 billion, of which £76 billion would be for small and medium sized businesses (SMEs). The SME portion is an increase of 15% on 2010.  
The lending to businesses will be on commercial terms that reflect the reduced number of lenders in the market. With bank base rates being so low, currently 0.5%, companies are being charged a huge premium with interest rates being set as 8 – 9% above the base rate. In addition, huge arrangement fees are also being applied, where fees representing 5 – 10% of the loan are not uncommon.
Many balance sheets are so decimated carrying huge liabilities to creditors such as HMRC, suppliers and asset based lenders (often at over value) that many businesses will not be able to justify a loan.
Business advisers, who see the effects of policy on the ground, say that one effect of Project Merlin will be for the banks to convert short term revolving facilities, such as overdrafts renewable daily, monthly or quarterly, into medium term loans. These will almost certainly be categorised as new loans in the quota reports but won’t actually represent additional, new funding. The banks continue to run rings around the politicians.
Converted loans are increasingly repayable on demand and therefore are being agreed on terms that allow the bank to keep all its options for essentially demanding immediate repayment.
Andrew Cave, of the Federation of Small Businesses, commented that the majority of small businesses were not seeking finance from the banks at the moment because the cost of existing and new borrowing is increasing and David Frost, director general of the British Chambers of Commerce, also cast doubt on whether the agreement will make any difference because of what he called the banks’ poor and opaque decision-making and over-centralised processes, with a lack of good frontline relationship managers locally in the banks.

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Cash Flow & Forecasting General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround

The Questions HM Revenue and Customs Asks to Assess a request for Time to Pay Arrears

Recently uploaded guidelines for HM Revenue and Customs case officers dealing with requests from businesses in difficulty for time to pay arrears of VAT, PAYE or tax, reveal the detail of what questions will be asked before the request for a Time to Pay arrangement (TTP) can be considered.
Applicants must be able to show that they have tried to raise the money they owe by other means beforehand.  Individuals, which includes sole traders and the self employed, may be asked to show that they have approached their bank or asked friends or family for a loan or that they cannot pay the debt via a credit card.
However, the advice to case officers also states that for individuals “it is unacceptable for us to insist that a customer has made every effort to secure a loan before agreeing TTP” because it would contravene Office of Fair Trading Debt Collection Guidelines.
Both individuals and larger businesses may also be asked whether they have any assets that can be easily converted into cash or any savings that they could use to settle the debt, even if early withdrawal might incur a payment penalty. This also applies to endowment or life insurance policies, although the HMRC cannot insist that these are cashed to pay a debt.
The HMRC distinguishes between debts below £100,000 and debts above that amount and for larger businesses HMRC would want to see evidence, usually a letter from the bank, that the company has approached their bank and discussed borrowing facilities beforehand as well as exploring options for raising money from: shareholders, Directors, book debt factoring and invoice discounting, stock finance, sale and leaseback of assets or venture capital providers.
The case officer will also consider the applicant’s previous history of paying on time, whether they have had a previous TTP and previous difficulties will weigh heavily in the final decision and whether the business is viable.
It would make sense, therefore, to have a thorough business review and the support of a rescue adviser or insolvency practitioner to assess the business viability and explore all these options and to document them before approaching HMRC.

Categories
General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround

HMRC’s Assessment Criteria for a Time to Pay Arrangement for Revenue Arrears

As businesses face continued tough trading conditions in 2011 a new series of guidelines has appeared on the HM Customs and Revenue (HMRC) website on the arrangements for paying arrears of tax, VAT and PAYE, known as Time to Pay (TTP).
Although the guidelines are aimed at those working in the revenue they are equally useful for businesses in difficulties in outlining the questions and conditions businesses will need to be prepared for if they are in arrears with revenue payments and looking for a manageable way to spread the repayments.
Firstly, in all cases the repayment period to be set will be as short as possible and usually no more than a year unless there are “exceptional circumstances”. However long the arrangement, interest will be charged while the debt remains outstanding.
There is no entitlement for a business to be granted a TTP.  HMRC officers must consider the timescale being requested by the “customer”, their previous payment history and the amount outstanding. 
Businesses must meet two further conditions and they are that the applicant must have the means to make the agreed payments as well as the means to pay other tax liabilities that become due during the TTP period.
Finally, the guidelines make it clear that the preferred method of dealing with TTP requests is by telephone, because it allows for detailed questioning of the viability of the business, and as part of the assessment of whether the situation is a “can’t” or a “won’t” pay.
The amount of detailed information that will be requested from the applicant will vary according to the level of the debt, divided into three categories, for debts below £100,000, from £100,000 to £1 million and for more than £1 million.
Whatever the level of arrears, for a successful TTP to be achieved any business in difficulty is strongly advised to be honest with itself and its advisers about all its outstanding debts and liabilities if it is to be able to stick to any TTP arrangement.
It is crucial that before the telephone conversation the applicant has all the required information on income and expenditure prepared and ready so that they can remain calm throughout what can be a stressful situation.

Categories
General Rescue, Restructuring & Recovery Turnaround

Is Your Business Structure Holding Back Your Success?

The structure of a business is crucial to its success and often it can get in the way of growth.
If a business needs to build another factory, say, then if the funding is not in place to do so that will get in the way of growth. This should be factored into the business model.
Often, in order to correct this kind of issue a business needs to be restructured to give itself the flexibility it might need to survive and grow.
Ideally a regular look at the business structure would be part of the process of continuous improvement to ensure a business is in the best possible shape to meet short term problems,  like an economic downturn and a consequent drop in orders, and to enable it to thrive, grow and expand long term.
Restructuring more often is carried out as a consequence of a business struggling to survive and is one of the tools available to business rescue advisers called in to help a company in difficulties.
An example of what a restructuring adviser can do is the case of a company K2 was involved with that had a break-even point of £3.5 million and whose turnover had declined from £5 million to less than £2.5 million.
In this situation it was clear that, although viable, significant changes were needed. They included closing a factory, getting rid of onerous financial arrangements, terminating some employment contracts and reducing other fixed costs.  The outcome of these actions was to reduce the break-even point to £1.8 million.
A reduction of sales to just under £2.5 million then became a healthy profit rather than a significant loss.
It meant that the unit cost of production was also reduced once it was free of the burden of the finance drain on the equipment.
It might seem that this should have been obvious to those running the company, but it is possible to be too intimately involved in the day to day running of a business, especially one under this kind of stress, and to be unable, therefore to stand back and look at the elements in the structure of the business that are impeding a solution to its changed circumstances.