Struggling businesses facing tough choice - redundancy or restructuring
BUSINESSES struggling to recover in the wake of the COVID-19 pandemic are opting for restructuring rather than redundancy.
And a leading Sheffield financial expert is warning that the tough choice will see more companies closing their doors as the furlough scheme comes to an end and they may be facing forced closures and local lockdowns.
“We are already talking to several business who are facing this terrible dilemma,” said Deborah Lockwood, partner at insolvency and recovery practice Graywoods.
“On the balance sheet or by any other financial test they are not insolvent but after so many months of uncertainty, mothballing, declining orders and incurring ongoing costs they do know that they will have to make redundancies.
“And that creates a massive problem because they discover that they cannot afford the redundancy option, which can be significant, and so instead are forced to look at restructuring as the only viable way forward.”
The furlough scheme, she added, might have appeared to create a lifeline at the height of the pandemic but as that level of support is withdrawn business owners now see the true extent of the crisis they are facing.
“The return to work highlights the ongoing liabilities that all businesses face and whatever reserves they may have are very quickly depleted, along with any loans and grants that might have been utilised,” she explained.
“Now they find that they can only re-open at a certain capacity, but that capacity might not even cover overheads, which is when they start to look at redundancy and realise that the cost of making people redundant will actually make them insolvent.”
Deborah added that many businesses would initially imagine that in order to survive they would need to cut costs and would investigate redundancy as a possible option.
“Look at a wage bill for a full year and it might initially seem like a lot of money to be paying out but when you break those figures down over 52 weeks, the saving might not seem so big after all,” she said
“But when stacked up against the option of becoming insolvent, it’s perfectly understandable that closure might seem the only choice.
“We are talking to businesses that feel they are staring into the abyss - they don’t have enough business to maintain a healthy balance sheet and they don’t want to lose their staff or their company but feel they have no choice because they are in such a negative position.
“This is the time when it really is essential to seek advice and explore every avenue before taking that final step that leads to insolvency.
“Take stock, look at how well your company is, and can continue, coping with the challenges that it is facing.
“If you can you see light at the end of the tunnel but you are worried that your company won’t survive long enough to reach it, there are steps you can take.
“It might simply be that your company needs time to get back on its feet and with a careful plan set in place it could be possible to keep a workforce onside for future success.”
This was posted in Bdaily's Members' News section by John Highfield .