Top accountant urges: Beware of the recovery, not the recession


A RESTRUCTURING expert at one of Scotland’s top chartered accountancy firms has warned companies of being complacent during economic recovery.


Matt Henderson, Head of Restructuring at Johnston Carmichael Chartered Accountants, is encouraging companies to make sure they are prepared to survive the economic recovery period.


Matt believes that an improving economy during 2015 could lead to trouble for some companies.


He said: “Many companies have concentrated their efforts on surviving the recession and they might feel a sense of relief now that the economy is showing signs of recovery.


“However, their relief may be short-lived. Strangely enough an economic recovery can be a precarious time for businesses.


“During an economic recovery, there is a greater need for companies to fund growth and finance new capital investment, products, stock and recruit additional people.


“This hunger for additional capital will mean that struggling companies will need to obtain further credit at the same time when their lenders are presented with more solid alternative investment opportunities.


“Commercial lenders are currently supporting problem accounts, waiting for better market conditions when they will have a chance to offload distressed assets.


“Low interest rates at the moment reduce the carrying cost of problem debts, but monitoring and management of these companies can be time-consuming and expensive, so their support won’t remain in place indefinitely.


In addition, with the prospect of an interest rate rise in 2015, there will be increasing pressure to restructure the debt within distressed businesses.


“It seems ironic and counter-intuitive, but as the economy recovers we are likely to see an increase in activity to restructure problem debt.”


Urging companies that may be in distress to act now he added: “Companies that are currently struggling need to act now. If you are running a company that is only servicing its debt, you need to consider very carefully how you are going to survive the recovery.


“The sooner business owners reach out for help the better because early intervention and support means increased chances of survival and recovery.


“Too often, the professionals who can help are brought in too late to turn around a failing company.


“There are several options and solutions available to companies under financial pressure, but it can be difficult to implement an effective solution if there is simply no time to see the operation through.”