What Directors Should Do First
Most businesses experience financial pressure at some point.
For some, it’s a short-term cashflow issue. For others, it becomes more serious, HMRC arrears, creditor pressure, or difficulty meeting payroll.
What matters is what you do next.
Acting early gives you more options, reduces risk, and often leads to significantly better outcomes.
This guide explains:
- the early warning signs of financial distress
- what to do in the first 72 hours
- the restructuring and insolvency options available in the UK
- how to protect your position as a director
What is Financial Distress in a Business?
Financial distress is when a company cannot generate enough cash to meet its obligations.
In the UK, this typically shows up in two ways:
- Cashflow insolvency. You can’t pay debts as they fall due
- Balance sheet insolvency. Liabilities exceed assets
Many directors don’t recognise how serious the situation is until pressure builds.
In reality, the earlier you identify the signs, the more control you retain.
Early Warning Signs Your Business May Be in Trouble
Financial problems rarely happen overnight. Common warning signs include:
- Increasing pressure from HMRC (VAT, PAYE, NIC arrears)
- Stretching supplier payments beyond agreed terms
- Ongoing cashflow shortages
- Falling margins or reduced pipeline
- Reliance on short-term fixes or borrowing
- Inability to pay yourself consistently
- Rising stress and constant firefighting
If several of these apply, it’s time to take action.
What Should Directors Do First? (The First 72 Hours)
When financial pressure escalates, the priority is simple: Protect cash. Create clarity. Avoid missteps.
Immediate steps:
- Build a 13-week cashflow forecast
- Identify critical payments (wages, utilities, key suppliers)
- Pause non-essential spending
- Understand your creditor position and risks
- Hold a board discussion and document decisions
- Take professional advice early
Decisions made at this stage can directly affect:
- The survival of the business
- Outcomes for creditors
- Your personal position as a director
Your Options if Your Business is Struggling
There are two broad routes: Informal solutions and formal processes.
Informal Restructuring Options
These can work where the business is viable and stakeholders are supportive.
Common options include:
- Negotiating repayment plans with creditors
- Refinancing or consolidating debt
- Invoice finance (factoring or discounting)
- Time To Pay arrangements with HMRC
- Bringing in new investment or funding
- Selling assets to generate cash
However, informal options:
- Are not always legally binding
- Don’t stop creditor action
- Can delay the problem if used incorrectly
Formal Insolvency and Restructuring Options
Formal processes are often misunderstood.
They are not just “closing the business” they are structured tools designed to:
- Protect viable businesses
- Manage creditor pressure
- Create controlled outcomes
Key UK options include:
- Administration – protects the business while a solution is implemented
- Company Voluntary Arrangement (CVA) agreement with creditors
- Moratorium – short-term breathing space
- Restructuring Plan – court-approved compromise
- Liquidation (CVL) – orderly closure if rescue isn’t viable
Choosing the right option depends on timing, viability, and stakeholder dynamics.
Director Responsibilities During Financial Distress
When insolvency is likely, your duties shift.
You must prioritise creditors’ interests, not shareholders.
Key risks include:
- Wrongful trading
- Preferences (paying some creditors over others)
- Transactions at undervalue
- Poor record keeping
The good news: Most directors we work with are trying to do the right thing.
Risk usually arises from lack of information or delayed advice not intent.
When Should You Seek Advice?
The earlier, the better. You should seek advice if:
- HMRC arrears are building
- You’re struggling to meet payroll
- Creditors are increasing pressure
- You’re considering borrowing to survive
- You’re unsure about your legal position
Early advice can:
- Increase your options
- Protect your position
- Improve outcomes for all stakeholders
How Springfields Advisory Can Help
At Springfields, we work with directors and their advisers to bring clarity and control to difficult situations.
We support:
- Cashflow stabilisation
- Stakeholder management (HMRC, lenders, suppliers)
- Restructuring planning
- Funding and refinancing options
- Formal processes where required
We are often brought in when:
- Pressure is building but options still exist
- Decisions need to be made quickly
- Advisers want a trusted restructuring partner
In many cases, earlier involvement leads to significantly better outcomes.
A Note for Accountants, Solicitors and Advisers
If you are advising a client experiencing financial pressure, early engagement is key.
We regularly work alongside professional advisers to:
- Protect client relationships
- Provide specialist restructuring input
- Support practical, commercial outcomes
Financial distress is challenging but it is manageable with the right approach.
The key is simple:
Act early. Get clarity. Take advice. If you want to talk about financial distress in your business get in touch today
