Fending Off Insolvency – How To Navigate The Potential Rough Waters Ahead

Declaring insolvency for a business is every owner’s nightmare, and with the current economic climate both unpredictable and worrying it’s fair to say that most businesses are anxious as to what lies ahead.

The most recent KPMG UK economic outlook report signals a crushing red alert for the future of businesses once the pandemic finally comes to an end. It states, ‘There is also a significant likelihood that the end of the pandemic will be associated with a wave of company insolvencies. Since the onset of the pandemic, businesses have been partially shielded from insolvency both by the direct financial support on offer as well as by temporary measures suspending and relaxing insolvency procedures. Since the start of 2020, the number of insolvencies has been more than 25% below the average pre-pandemic levels, suggesting that these measures have suppressed some of the usual business churn and firm turnover on top of mitigating pandemic related pressures. Once the temporary regime is over and businesses are forced to confront a new normal, we expect a significant uptick in the number of company insolvencies, potentially exceeding the highs seen in 2008-12.’

Business insolvency rubberstamps the overall failure of a business and protecting against it is an utmost priority for anyone wanting to start or front their own company. Safeguarding and using the information from your business to great effect are the fundamental cornerstones of any business leadership. We spoke with Nordens’ Director of Strategic Consultancy, Joe Sword, about the predictions for businesses and the wider economy ahead, lessons learnt from a challenging last year and how to fend off the threat of insolvency from rearing its ugly head.


Do you agree with the recent KPMG forecasts that there will be an influx of business insolvencies at the end of the COVID pandemic? What will this mean for wider economy in general?

Yes, I do agree with the recent KPMG forecast predicting a huge rise of insolvencies as the pandemic draws to a close. This is predominantly down to the furlough scheme in my opinion and the fact it’s been extended for such a lengthy period of time, allowing businesses to avoid making crunch decisions. Once furlough ends, these crunch decisions will have to be made and button needs to be pressed as the recovery process yields its axe.

On the other hand, because the pandemic and subsequent furlough schemes have gone on for so long, it’s possibly enabled businesses to pivot and adapt to a new structure which could be even more positive than their original offering. I think there will be definitely an influx of business insolvencies, as history tells us this is only natural during an economic recession recovery, however the timing of the extension could have provided the impetus for businesses to survive and keep afloat.

The focus on long term growth and opportunities has been because businesses have adapted during the unpredictable climate. For the economy, many businesses were operating at unsustainable models just to be competitive in a saturated market, so I think it may cleanse the environment of many sectors and allow for a structural reset. The stronger companies will become stronger and the ones who were not sustainable will be slowly be phased out. It may take a while to kick in, but there are many positives economically which could happen.


What are some of the basic ways a business can fend off insolvency during the current economic climate?

It comes back to your business model and offering in general. You need to know where you are and be very clear on cashflow. Constantly looking for ways to pivot the cliff edge can be stressful, however thousands of business owners are in the same position and at the end of the day it comes down to survival of the fittest. Essentially you have to analyse two things: outgoing costs/debt and incomings/profit.

You then need to figure out what are your projections are, what are you doing to generate new leads and install confidence in your staff. If you’re in a business which offers a ‘luxury’ product offering, it may be worth restructuring and looking to offer something more reasonable. It’s essential we use the planning and experience of the past year to allow our business to be as healthy as possible. This can be done through five key areas:

  1. Put in place robust forecasts, looking at different types of scenarios so you have a plan A, B and C. This will give you control and confidence, allowing you to accurately compare these to your actual performance on a regular basis to see, spotting trends and triggers to improve on.
  2. Stress test your business model on a regular basis, ensuring it remains viable in the ever-changing world we now live in.
  3. Speak to your customers regularly. Due to COVID, their appetites may have changed and what they once valued may not be as important now, and vice versa.
  4. Look to innovate. We are seeing many businesses focus on this now, whether that is creating new products or services, tweaking existing products and offerings to make them more in line with a post-COVID economy, or making the most of technology to digitally automate and streamline time consuming tasks. For many, COVID has helped ignite the entrepreneurial spark in many people and I think we will see the fruits of this for many years to come.
  5. Spend time with your people. We have so many people to thank for their support throughout this pandemic, most notably the NHS and key workers, and closer to home your people have been on the proverbial battlefield with you throughout. It is important to truly gauge how they have been affected, so you can support them and help reenergise them for the next chapter.

It’s also worth noting, don’t bury your head in the sand. HMRC are currently very lenient and understanding as a vast number of businesses are struggling to pay their bills and debts. Being honest and upfront will give you peace of mind whilst covering your back against any late penalties and fines on the horizon.

It can be tough but critiquing your team and asking what their values are can be crucial. The value they bring to the table may have seriously diminished in a post-COVID world. Being straight about this is necessary in order for your company to prosper long term and come out of the other side of the pandemic in a stable position. Likewise, make the most of furlough in the last few months as it’s there for a reason and could just give you that last bit of a helping hand which can make the difference.


Is there a case that with the digital evolution in business, spurred on by the pandemic, that some companies will inevitably become redundant and essentially not be needed any more (retail, arts/gig economy, hospitality, construction)? What do you advise for these types of industries?

I firmly believe companies that are not willing to adapt will become redundant, whether that be in the short term or the long term. The industries will always be there in some form or another, however analysing the way your products/services deliver value to the end customer is key.

Let’s take toy shops for example, and the way the quintessential toy shop has completely transformed to what it was when we were children. Toys “R” Us reigned supreme for what seemed like an eternity yet as the retail market slowly started to adapt to an online offering, Toys “R” Us couldn’t keep up and were eventually overtaken by online vendors such as Amazon as well as supermarkets wherein customers could consolidate their purchases (food, groceries, gifts etc.) all in one place. It’s imperative that businesses continue to adapt, as things will continue to evolve and tweaking your model is always going to be needed.

The digital revolution, so to speak, is for me a positive vision and should be prioritised as a growth purpose. Businesses need to embrace this as a priority, otherwise failure is a very likely possibility.


What are some of the biggest lessons learnt from the pandemic and how can businesses put themselves in the best possible future position (post-pandemic) based on their circumstances/sector?

One of the biggest lessons learnt I feel is collaboration. Look at how many businesses out there who are collaborating and working together, which if executed and delivered well could see a whole other direction of revenue rubberstamped. I think businesses need to be joining forces and maximising their exposure and potential. As well as this, try your very best to not put yourself in a position of reliance on one given part, whether that be a particular market, team member or a product/service. You need to broaden your repertoire whilst still keeping to the same principals which have brought in success. One of our clients has a really strong hedging model, where their product offering is weather-dependant. One supplements the other at certain points of the year and I believe this diversified offering is a huge winner for them. Hedging your income and profits based on a time, audience or theme can spread the reliability, leaving you in control to utilise their strengths. When something isn’t going so well, you have the tools to switch it up and offer something different that could bring about a huge gain.

The pandemic has given many businesses the kick needed to study their numbers and analyse their figures. Working on cashflows with businesses over the past year has enabled owners and senior management to obtain knowledge which can be used to push and critically evaluate their team and outgoings. Forever asking yourself the question, ‘where is the value coming from?’ will help you understand the value-focussed economy we currently inhabit. It’s given everyone a shake and when times are tough, it separates the wheat from the chaff. People will still purchase if value is matched to their preference, and always keeping that in mind will be influential in the not-too-distant future.


We hope this has outlined to you how to reduce the risk of business insolvency. If you require any more information on the strategic advisory programs we provide, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

We’re now also offering COMPLIMENTARY Strategic Consultation Sessions up to 30th June 2021. Please contact Nordens’ Director of Strategic Consultancy Joe Sword at js@nordens-strategic.co.uk or 020 8530 0720.

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