A Company Voluntary Arrangement (CVA) can help businesses who are suffering to pay off their debts to creditors. It offers businesses that are insolvent the chance to take control of their costs. It is a really useful tool for restructuring and writing off debt.
How does a CVA work?
A Company Voluntary agreement is a legal agreement between a business and its creditors to reorganise their debts. It involves looking at your current financial situation and understanding how much debt can be paid off, whilst also considering what can be written off as agreed by your creditors.
There are different types of CVA proposals that may work for your business: fixed contributions, seasonal based contributions and asset release. Fixed contributions take your cashflow projections and arrange a fixed monthly amount of a certain amount of time (normally 60 months).
Whereas, seasonal based contributions, can be a little more flexible. Businesses can pay off variable amount based on their cashflow peaks and troughs. With asset release, companies have the option to release assets in the arrangement, which can be great at giving you more time to organise your situation.
However, in order for a business to benefit from a CVA, it is important that you are prepared with a hands-on approach. As a company, you need to be able to commit to a long-term payment plan. Here are some tips on how you can get a plan in place to prepare properly for a Company Voluntary Arrangement.
Step 1: Finance Analysis
Before entering into an arrangement, it’s important to analyse your current state of affairs. Although the picture may not be a pleasant one right now, analysing your costs could help find ways you could save.
It may be a cheaper building or an agreement with suppliers, whatever you can find to cut your costs down. It’s also worthwhile to review your finances regularly and ensure that everything is up to date. This includes ensuring tax is all paid up and that you keep all your debts up to date currently too.
As you enter into a CVA, it is imperative to keep track of your finance on a regular basis. It will help you stay in control as you’ll be dealing with a tight budget.
Step 2: The business plan
With a CVA your financial future is going to be a little different. Therefore, it’s good to align your company’s future plans with your financial information.
Putting in place a budget as well as cashflow and profit and loss projections over the next few years. It’s important to be frugal in this so that you can ensure you are meeting your repayments too. Your creditors will also need reassuring that your proposals and projects are realistic.
Setting out a proper business plan aligned with your financial situation can really help you see where your future cash requirements are going to be. It can help put in place an idea of when you can afford to make repayments, whilst also keeping your business afloat.
Step 3: Get professional help
Setting up a meeting with a licensed insolvency practitioner, such as Cashsolv, can help you with the CVA preparation. They’ll be experienced in dealing with businesses in this situation. Furthermore, they can assess your company situation and decide if a CVA is really the right step forward for you.
They can then help you draft a proposal after reviewing all your financial information. An insolvency practitioner will also ensure that your final proposal gives your business a reasonable chance of success before it gets taken to court.
In a stressful time, it is always best to get sound advice from a professional to help guide you in the right direction.
Going through those steps can help your business get financially stable again. It can take work, but it’s important to be able to see the future financial projections before entering into this kind of agreement.
It’s important to explore all your options too. Sometimes, a CVA may not be the right answer for your company. New funding, informal arrangements or even liquidation are also on the table.
However, if you are well prepared, a CVA can be helpful. It can give you the opportunity to take control of finances and give you a chance to get back to business.
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