A company voluntary arrangement (CVA for short) is a tool that businesses on the brink of insolvency can use to manage their debts and avoid liquidation. Facing such financial difficulties is not a fun prospect for any business owner, but in dire circumstances did you know that a carefully planned CVA could be your company’s path to salvation?
An Option Of Last Resort
It goes without saying of course that a CVA should be a last resort and if you are facing problems it is always worth attempting to solve them via less formal channels.
You could for instance, negotiate with suppliers or other creditors to make smaller repayments and reduce your liabilities and you should always try to cut your other outgoings and prevent any further debt accumulation.
But if none of the above have helped, seeking a voluntary agreement could save your business from ruin. Here’s why:
Manage Your Outgoings
During the process of coming to an agreement you will agree with your creditors an affordable repayment schedule to cover your existing debts. This will be formally agreed and should result in a set monthly outgoing that you can account for.
The agreed amount will depends on several factors, one of which being what you can actually afford as a business.
In many cases this can lift the burden of high monthly payments and give you a small amount of breathing room. You will still have to work hard, but the structure should give your business room to operate.
Free Up Cash Flow
Having a predictable monthly outgoing can help you to manage your cash flow without the worry that your creditors will suddenly demand payment or otherwise hinder your business.
As long as you keep up the agreed payments you can focus on keeping the cash flowing and keeping your business alive, which is the most important thing right now.
Maintain Supplier Relationships
Although you should not want or be given any further credit, once a CVA is in place your suppliers should still allow you to do business with them provided you also keep up payments.
Without a CVA your suppliers may well cut you off from purchasing any further stock and therefore keeping your relationships open may well be critical to your ability to run your business, albeit on a smaller scale perhaps.
Maintain Customer Relationships
This is probably the most critical aspect because when your business is struggling, your customers are by far the most important thing you have. Keeping supplier relationships open and keeping your business trading is key to avoid losing customers.
If your business grinds to a halt due to financial problems or legal action you can lose a hard earn reputation and a portion of your loyal customer base, which will make it all the more difficult to pull your business out of the debt trap.
Once your business loses its good reputation your chances of saving it might be all but gone.
It Will Force Action
They often say that you have to hit rock bottom before you can turn things around. Well that may not always be the case, but going through the process of a CVA can certainly give you the extra push to save your company.
It will force you to go over your finances and you will be under increased pressure to make your business work, to keep on top of your finances and to get out of that debt cycle.
Summary – CVA
Often, entering a company voluntary agreement can be make or break for a company. If you don’t manage to keep up repayments the most likely outcome is that you will face voluntary liquidation.
But in many ways, a CVA can be a turning point – it will force you to answer some tough questions and if you are determined enough it will force you to find a way to rescue your business, return it to profitability and improve your approach for the better.
Best of all, most businesses that successfully return from the brink of insolvency are stronger and more profitable for it. It will change how you view your business and perhaps your future career too.