Take decisive action if the golden quarter doesn’t deliver

For many retail and hospitality businesses, success means having a busy and profitable golden quarter in the run up to Christmas. However, 2023 hasn’t been kind to every business owner and if your business is struggling then taking swift action is key to your survival.

Where to start?

Cashflow is king and it is essential to know what payments are coming up and to look at areas where you can make cost savings to enable you to meet them. You can’t control your fixed costs such as rent but you can control your payroll and that is often the place to start to maintain a healthy cash position.

Attracting new customers – this may sound obvious but sending out a couple of emails inviting people to drop by isn’t going to cut it, so give more thought to your January promotions. Can you fill up your quieter times by attracting clubs or societies or making new groups of customers more welcome. This is where getting to know your local community is key. For example, is there a running or fitness club who would like somewhere to meet up for a healthy eat after a workout, can you offer non-alcoholic drinks for those taking part in dry January or vegan means for those trying Veganuary?

Focus on delivering value and your experience rather than just discounting your prices. When you must return to full prices it is likely you will lose those customers who were just attracted on price alone and your regular customers will have got used to the lower prices. Many businesses do more harm than good with poorly thought-out promotions.

Businesses struggling with cash flow need to understand HMRC’s position as a secondary preferential creditor whose claims are paid after preferential amounts are paid to employees. HMRC will allow you to make an arrangement to pay if you can’t pay on time however they are less generous on terms than they were during the pandemic. Communication with them is key if there is no other alternative.

Communication with your landlord is also important if you are not able to make rent payments in full for the next quarter. If you are in a prime site, they are likely to want to remove you straight away however for those medium to poor sites they might be more accommodating as they will be keen to avoid taking on the responsibility for business rates if they were unable to relet it quickly. Talk to them about what you can pay, but don’t take advantage of the situation as you will ruin your longer-term relationship.

For businesses which would be otherwise profitable if they were not saddled with unserviceable debts then it is worth considering whether a Company Voluntary Arrangement (CVA) or a Prepack Administration are suitable. A CVA can be used where creditors will be willing to accept a compromise on their debt however you will need to have the support of HMRC in relation to their preferential debt (VAT and PAYE) as well as your secured creditors.  If an agreement cannot, or is unlikely to, be reached with creditors, then a prepack sale may be a constructive solution. A prepack sale, to either an independent third party or connected party, can free a prospectively profitable business from historic liabilities, whether because of the Pandemic or other unforeseen shock, which has led to an unserviceable debt burden.  Typically, a sale takes place so the business closes one day and reopens the next, to minimise the impact of a protracted insolvency period. The benefits of a prepack may include continuation of employment for the workforce, a viable tenant for landlords, a profitable business able to pay taxes going forward and continuation of supplier/customer relations. The prepack should also provide the best return possible to existing creditors from the distressed position the insolvent company was facing. It is inevitable that creditors will face losses in a prepack and so every effort should be taken to ensure it is the best solution available to the company and its directors prior to embarking on the process. If a director is considering a CVA or Prepack specialist advice should be sought to ensure that the process is transparent, and the transaction has the best prospect of success.

Henry Page is a Corporate Restructuring Partner at Mercer & Hole and can be contacted at Henry.page@mercerhole.co.uk or visit www.mercerhole.co.uk for more details