To understand the early warning signs, discuss what businesses can do when faced with challenging circumstances such as insolvency, and to provide practical advice on what to do next, British Beauty Council COO Helena Grzesk MBE was joined by David Williams and Mireille Turner from law firm BDB Pitmans, and Valerie Delforge from the Delforge Group for Protecting the Brand, Surviving The Restructuring Challenge, a Business of Beauty webinar.

As well as the webinar, which can be watched on-demand on the , David Williams and Mireille Turner have produced the following article.

The British beauty industry is strong, resourceful and entrepreneurial. Despite the difficulties of the last couple of years (and ongoing), many businesses are viable: some may just need a little breathing space and/or guidance. This is where restructuring discussions (both internally and externally) may help.

Restructuring can have negative connotations often associated with insolvency processes like administration and liquidation, but that is not necessarily the case: it can also extend to informal negotiations with stakeholders and creditors, or more formal rescheduling of payments, extension of credit lines and refinancing/investment.

Further, the considerations involved in restructuring and turnaround situations are usually the sort of best practice management that all businesses should be doing, constantly, to ensure that they remain efficient and competitive, enabling them to deal with any bumps in the road that might arise. Above all else, it is important to maintain a sensible and pragmatic view of the business itself, as well as the market in which it operates – not only to identify pressure points, but also potential opportunities.

It may seem obvious, but preparing and maintaining business plans and cashflow projections can be of great assistance.  In addition to the traditional focus on prospects, growth and development, the best business plans are conservative, building in an element of protection, and attempting to identify key/essential suppliers and contracts, crucial to the business not only surviving, but thriving. Negotiating for concessions and/or forbearance will often be easier, if supported by well thought out plans and projections.

Similarly, if refinancing is being considered, investors and lenders will almost certainly require an understanding of the current and future cash needs of the business; warranties and/or guarantees may be required from the company and the founders before funds are released, and having reliable plans and forecasts to hand can streamline this process. For those that can afford it, restructuring professionals can be of great assistance in this respect.

It is never too late to prepare these types of business plans and projections: indeed, they can be essential during periods of financial stress. If you do not have one already, draw one up – however rough and ready it may be.

Communication

When a business comes under financial stress, the temptation can be to baton down the hatches, rather than risk customers, suppliers or staff losing confidence, to the further detriment of the business. At the same time, however, keeping key contacts in the dark or burying your head in the sand can make things worse. It is therefore important to consider when – and how much – to communicate to stakeholders, both internally and externally, about your plans in order to prevent them from drawing their own inferences.

Save the Brand

Unfortunately, despite best endeavours, good businesses do fail for reasons outside of their control – particularly after the last couple of years. However, in those unfortunate situations where liabilities have simply grown too large for the business to continue in its current format, that does not mean that it is the end of the road for the brand.

It may be that the business can restructure itself to exploit alternative routes to market, such as trading online, and the rise of Amazon FBA, which may make it more nimble going forward. Sometimes, even that may not be enough – but even if the company fails, that doesn’t mean the business/brand has to.

An understanding of the separation between the business, and the Brand (with a capital “B”), can be key to the survival and ongoing success of distressed brands. When a company is placed into a formal insolvency process, the administrator/liquidator will look to sell the business and assets if possible –including the brand and goodwill. Expert valuation reports are often commissioned to ensure fair value is paid – although a large part of the goodwill valuation of a business (particularly those in the creative and beauty industries) is often down to the individuals that drive it. In those circumstances, the “best price” is often secured by selling the business/brand back to its creators. This can be a controversial practice though, and it is therefore key to engage early on with restructuring or turnaround professionals, who should be willing to have an initial chat for free, and can help outline the options available to you, and the best way to protect your brand.

Directors’ Duties

Whilst practical guidance is extremely helpful in these circumstances, it is also important to highlight that if your business is incorporated as a company, you owe certain statutory and fiduciary duties to the company such as to promote its success amongst many other things. Those duties extend further, to protect creditors, when a company becomes financially stressed.

Should you fail to observe those duties, whether that’s intentional or not, it could leave you open to personal liability, disqualification as a director or even imprisonment.

The Business of Beauty: Protecting the Brand, Surviving the Restructuring Challenge