When people hear the word insolvency, they often assume it means the end of the road for a business. And I can understand why, it is a serious and often difficult process for owners, directors, employees, suppliers and customers, but it does not have to mean a business has no future.
In many cases, insolvency can create the breathing space needed to protect what is valuable, deal with financial pressures and give the business, or parts of it, the chance to move forward on a stronger footing.
For businesses across Aberdeen, the north east and the wider Scottish economy, that distinction matters. In today’s challenging economic climate, even well-run companies are coming under huge pressure from rising costs, cash flow and supply chain issues, or changes in customer demand.
A chance to reset
One of the most valuable things an insolvency or restructuring process does is give a business the chance to take stock. That might mean looking at which parts of the business are working well, where cash is being tied up, whether costs can be reduced, or where there may be opportunities to grow.
Coming out of insolvency can allow a business to focus on its strongest products or services, improve cash flow, simplify operations, attract new investment and adapt more quickly to changing market conditions.
Keeping the business moving
There is also a misconception that insolvency means a business immediately stops trading. That is not always the case. In many administrations, the business can continue to operate while options for the future are explored.
A recent example is Christies of Fochabers, a long-established nursery and tree growing business based near Buckie in Moray.
The company had faced increasing cash flow pressures before entering administration, but it was also a well-regarded business with a strong reputation and deep roots in the local area. After my colleague Michelle Elliot and I were appointed as Joint Administrators, the business continued to trade while we looked for a buyer.
That process led to the sale of the business and its assets, with all 32 employees transferring to the new owner. Importantly, the sale gave the purchaser the opportunity to build on the strengths of an established business without the burden of its historic financial difficulties. Alongside preserving jobs, it created a platform for growth through a broader product offering, an expanded customer base and the fresh start needed to invest confidently in the future.
Why early advice matters
One of the messages I always emphasise to directors is the importance of taking advice early.
That does not mean a business will automatically enter an insolvency process. In fact, the earlier advice is taken, the more options there usually are.
Sometimes the answer may be a review of cash flow, speaking to lenders, agreeing time to pay with creditors, looking at funding options, reducing costs or planning for a sale or investment.
The key is not to wait until pressure becomes unmanageable. Early advice gives directors more time to plan, understand their options and make decisions calmly.
Growth after insolvency
For a business coming out of insolvency, growth may not mean returning to the old way of doing things. Often, the strongest growth comes from being more focused. That might mean concentrating on the most profitable parts of the business, improving margins, reducing unnecessary costs or investing in areas where there is clear demand.
It can also mean leaving behind some of the issues that held the business back, such as historic debt, unprofitable contracts or outdated systems. A leaner, more focused business can be better placed to respond to new opportunities and build long-term resilience.
A more balanced conversation
Insolvency is a serious step, and it is important to talk about it sensitively. There are people, jobs and communities behind every business.
But a business that has gone through insolvency is not automatically a failed business. In many cases, it will still have strong people, loyal customers, valuable assets, good products and a future worth protecting.
With the right advice and a clear plan, insolvency can be the point at which a business deals with the pressures it has been carrying and starts to rebuild.
Insolvency is never easy. But in the right circumstances, it can be the start of a new chapter - one built on clearer priorities, stronger foundations and renewed opportunity.