Turnaround vs Insolvency: What’s the Right Move for Your Struggling Business?
Business owners and directors face challenges every day. Rising costs, supply problems, dips in demand and countless other pressures mean the journey is rarely smooth, and there always seems to be another hurdle to clear. When financial pressures mount, directors are often forced to consider a difficult choice. Should they push for a turnaround or accept that a formal insolvency process may be necessary?
Understanding Turnaround
A turnaround is about stabilising a business before it falls into a formal insolvency process. It usually means taking urgent steps to reduce costs, improve cash flow, and strengthen day-to-day operations. This might involve renegotiating with lenders, adjusting strategy or products, or tightening financial controls. The aim is to restore profitability and keep trading without triggering insolvency procedures. Professional bodies such as the ICAEW emphasise that successful turnarounds depend on recognising the warning signs early and acting decisively, ideally with external support to bring perspective, rationality and discipline.
When Insolvency Becomes a Reality
A business is technically insolvent when it can no longer meet its debts as they fall due, or when its liabilities outweigh its assets. If a business is unable to trade through or turn the business around the law offers several routes once this point is reached, from administration, which shields a company from creditor action while a rescue plan is attempted, to Company Voluntary Arrangements that allow debts to be repaid over time, or liquidation, which brings the business to a close and distributes its assets. Government statistics show that the most common outcome for UK companies facing this situation is voluntary liquidation, highlighting just how frequently insolvency becomes the last resort when recovery is no longer possible.
Making the Right Decision
The line between turnaround and requiring a formal insolvency process is often fine. A business with a solid underlying model may still be saved through restructuring if cash flow issues are short-term and creditors remain open to negotiation. However, if liabilities significantly outweigh assets, or previous recovery efforts have failed, formal insolvency may be unavoidable. In either case, timing is critical. Research has shown that many companies in severe financial distress wait too long to seek advice, reducing the range of available options. Those that act early are more likely to restructure successfully or enter insolvency in a controlled way that protects value for stakeholders.
The Importance of Early Action
Both turnaround and insolvency are valid strategies, but they serve different purposes. Turnaround is about breathing life back into a struggling company; insolvency is about drawing a line under unmanageable debts and finding the fairest outcome for creditors. The key for directors is to act quickly, seek professional advice, and understand that delay can be more damaging than the problem itself.
We Can Help
At Bretts Business Recovery, we understand the pressures that financial difficulties bring. Our experienced and approachable team will take the time to understand your situation and guide you through the options available, without judgment. We are committed to finding the most practical and effective solution for you and your business.
To speak with one of our specialists, call 0808 168 7540 or email enquiries@brettsbr.co.uk