The heat is on: here’s how to protect your company utility cost and from insolvency this winter

The heat is on: here’s how to protect your company utility cost and from insolvency this winter

August 16, 2023 by Sandra

It’s no secret that the energy industry has been struggling for some time.

Gas prices are still sky-high, and the market remains uncertain, which means utility companies that have been clinging on for dear life over the last few years have another tough winter ahead of them.

So, what’s the solution? If your utility company is struggling financially, read on to discover our expert advice on how to protect your utility company from insolvency so you can live to fight another day…

The energy crisis explained

There are several different factors at play which are causing the ongoing energy crisis, including increased customer demand and reduced supplies from Russia - which means that global gas prices are rising rapidly.

As a result, UK energy suppliers who buy the energy their supply in bulk from the wholesale market are being forced to increase their tariffs, resulting in huge financial and operational challenges.

Adding to the crisis are the rules surrounding the Supplier of Last Resort, which is impacting those energy companies taking on customers of other providers who have been forced to close, sometimes even resulting in them providing energy at lower rates than the wholesale price of gas.

With demands from consumers, shareholders, regulators, and the government to keep gas and electricity prices as low as possible whilst also ensuring an uninterrupted supply, it’s no surprise that energy companies are feeling the pressure.

And we’re not out of the woods yet, with many predicting that the energy crisis won’t let up until 2024.

9 ways to protect your utility company from insolvency

1. Know the warning signs

Firstly, if your company is nearing the point of insolvency, you need to act fast if you’re going to recover your position and save your business. It’s vital that you keep an eye out for the warning signs of insolvency and act as quickly as you can.

Key things to look out for include cash flow problems, defaulting on bills, struggling to pay staff wages, high interest payments on loans or facilities, and falling margins. If you notice any of these signs, it’s important to seek advice from a licensed insolvency practitioner as soon as possible.

2. Take a close look at your cash flow

Another important way to protect your company from insolvency is by taking a close look at what’s going on with your cash flow so you can identify pressure points, make realistic projections, and implement improvements.

For example, are your invoicing procedures up to date? Are you owed any payments that you could chase up? By closely reviewing your cash flow, you can identify ways to make improvements and hopefully give your cash flow the boost it needs.

3. Put together a plan

Now you know what’s going on with your cash flow, it’s time to put together a business rescue plan to steer your business back to profitability.

When you reach out to an insolvency consultant, they will assess the future of your business and help you put together a plan that takes advantage of insolvency laws to protect your business and give you a chance to turn things around.

Your business rescue plan should accurately reflect the standing of the company and cover key issues such as the basic operating budget, the minimum financing needed, cost cutting strategies, and ultimately how to keep your business afloat.

4. Liaise with your creditors

If your business is struggling financially, it can be tempting to bury your head in the sand and hope that everything gets better on its own. However, it’s always best to face things head on if you want to protect your company.

It’s daunting to liaise with your creditors, but the fact is that the majority would rather give you more time to pay rather than take legal action against you, so it’s always worth trying to negotiate an informal repayment plan.

Such arrangements aren’t legally binding, and your creditor could pull out at any time - however, if you stick to the terms of the plan and make payments on time, it could be an effective way to deal with your debts and protect your business for the future.

5. Arrange a Time to Pay

If one of the creditors you are struggling to pay is HMRC and you aren’t able to pay your taxes, it’s worth contacting HMRC to see if they will consider offering you a time to pay arrangement.

A time to pay arrangement enables businesses to pay off their tax liabilities over an agreed period, taking the pressure off and buying you extra time to turn things around.

However, not all businesses are eligible: you’ll need to have a viable business model, no previous history of failing to make payments, a steady cash flow, and a solid business proposal along with clear evidence that your business is viable and that you are able to pay off your debts. 

Find out more about how to apply for a time to pay arrangement in this blog.

6. Get your finances in order

Once you’ve spoken to your creditors, it’s time to get your finances in order. Start by carefully reviewing your accounts to see who owes you what and review your balance sheets to see what efficiencies can be made.

When you know what’s going on with your finances and how much money you need to stay afloat, you can keep a close eye on your cash flow whilst seeking alternative financing options to boost working capital.

Some possible solutions include factoring and invoice discounting, stock and asset refinance, or even taking out a director’s loan. For more ideas on ways to raise money, don’t miss this blog.

7. Reduce operational costs

As well as raising additional finance, if you’re struggling to keep your head above water, it’s a good idea to try and reduce operational costs as much as you can so you can nip any unnecessary spending in the bud.

Start by analysing your fixed costs, such as rent, before looking at other ways to reduce costs such as office space, outsourced services, and staff perks. Basically, you need to cut everything back as much as possible, so you are paying as little as possible.

8. Consider a company voluntary arrangement

If your utility company is facing more serious financial problems, a company voluntary arrangement (CVA) enables you to ring-fence your business and give you the breathing space you need to find a solution.

A CVA is a formal arrangement between a company and its creditors which highlights that, although you can’t currently pay your debts, you will be able to in the future. It gives you the chance to trade out of debt by paying towards your business debts for an agreed period. Once that period is completed, your remaining debts will be written off.

9. Start over with a pre-pack administration

Finally, if your utility company is struggling to pay its debts but would be viable if it could be re-started, a pre-pack administration is a legal insolvency procedure that enables you to restructure a struggling company by packaging it and selling it to a new company.

A liquidator will be appointed to wind up the existing company, and a new company (often controlled by the same directors) will be set up ready to buy the assets and the business. Once the company is sold to the new company, you can restart without your debts.

How McAlister & Co can help

If your utility company is facing financial difficulty and the threat of insolvency is looming over you, it’s important to act fast and seek the help of an insolvency consultant as soon as possible.

At McAlister & Co, we are business rescue experts - so if you are looking for help and advice on how to protect your utility company from insolvency this winter, contact our team today to discuss your next steps.

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