What do you do if you have legacy debts in your business, if a part of your business isn't doing well, or changing business conditions has meant that part of your business isn't competitive anymore?
Sumo Salad's Reasons for Voluntary Administration
Well, Sumo Salad has put part of their business into voluntary administration. Voluntary administration is a very often misunderstood part of business. Really, it gives you the opportunity to get breathing space to renegotiate those unfair conditions, or challenging conditions your business is operating in.
Sumo Salad have said that two areas of their business are in trouble, the first is legacy debts from previous management decisions. The company's operations are fundamentally very strong, but these past decisions have made it hard for it to move forward.
The second reason Sumo Salad have said, is that their operations in food courts have become uncompetitive. Landlords are choosing to put competitors directly next to them, making it hard for them to compete in their current cost structures.
Is Voluntary Administration right for your business?
Voluntary administration can be an attractive part of your business, but there's certain things you need to know and understand. The first is, coming out of voluntary administration will mean that creditors have agreed to your new business model. They need to sign a deed of company arrangement, and that says that they're comfortable with you moving forward.
The second thing to understand is that voluntary administration can be a high risk. If an administrator feels that your company can't pay its debts as they fall due, they have the power to wind up your business. It's important to understand which parts of your business you want to have on the other side of the voluntary administration, and nothing beats having a strong grasp of cash flow, so you can demonstrate to the administrator exactly where cash is coming from and where cash is going to, on a business-unit basis.
And finally, you need to have a plan of what you're going to do in voluntary administration. Are you looking to shut down business units, extend business units, renegotiate with your bank, or renegotiate with your creditors and major contracts that you might have inside your business?
Going into VA with a plan is the only way you're going to get everybody onside, so that you can run your business moving forward. Whilst voluntary administration often has a negative connotation in media, done with the right strategy and the right partners, it can be just what your business needs, but the only way to do it is if you do have that plan. Check out our Guide to Financial Visibility.