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Insolvent companies who sell their assets to a third party as soon as they go into administration, are said to be the subject of a Pre Pack Administration. This process tries to ensure the business can continue to operate under the new management, and the money raised from the sale of the assets can be used to settle as much of the previous company’s outstanding debts as possible.

Pre Pack Administrations are often used to make sure as much value can be extracted from a company that is in trouble, before formal insolvency proceedings make any issues public, and affect how much the assets can be sold for. Pre Pack Administrations are also used to facilitate management buyouts, helping the new company to carry on when the old one wasn’t able to, because it is in a much stronger financial position.

Using the Pre Pack Administration process to place a company in the hands of new management means that, in most cases, the company can become financially viable again. The proceeds from the sale of the company’s assets are used to settle the debts owed to the former business’s creditors. The new company usually retains all the employees of the old business, who do the same job as they were doing before, it’s simply the management of the company that has changed.

Pre Pack Administrations are not always the popular option for dealing with insolvent businesses. As it is the creditors who tend to be the biggest losers, and the least involved, in the whole process, many argue that the Pre Pack Administration process is just a way for companies in debt to continue their business with a clean slate, simply by changing their management. The people that the business owes money to have to simply accept whatever repayment they are offered as a result of the Pre Pack Administration deal.

The reality is, if a company were to continue through the insolvency proceedings, creditors would probably receive a lot less than they would form a Pre Pack Administration process. Insolvency Practitioners are only likely to recommend a Pre Pack Administration if it is the best way of settling the former company’s debts, while still making sure the new management can continue trading, and keep offering people employment.

With more an more businesses getting into trouble, Pre Pack Administrations have become more widely used, even though they have always been available as a means for dealing with insolvency. Make sure you seek professional advice is you are considering a Pre Pack Administration as a way to help your business out of financial trouble.

Working capital finance is one of those seemingly esoteric business school topics that turn out to have very real and rather fundamental applications for the small business owner with no training or prior experience except his or her own common sense.  Any sole proprietor, as the term for these “moms and pops” goes in business school classes, knows about working capital finance from having to deal with inventory and accounting day in, day out!  But when these small-time businessmen and women think of it, they are usually only imagining two things, borrowing money or putting more equity in their business – the traditional sources of business capital.

Yet most business owners don’t realize that one of the greatest ways to finance working capital is to let their suppliers do it for them! There’s no need for small business loan when the money is already there.

It’s true, and this article will briefly outline how.  But before we do any further, the usual legal disclaimers are necessary: what follows shall be understood as comprising of mere opinion only and should in no way be misconstrued as professional advice of any kind whatsoever by anyone for any reason!  Readers are strongly urged to consult with all the relevant professionals, properly licensed and/or otherwise qualified, when making business decisions of any financial consequence, for neither the author nor the publisher shall be held liable in any manner for sharing information that is simply provided for “human interest” purposes.

All right, now with that out of the way, let’s explore how working capital finance can be secured through one’s own creditors!

The way to do this is, of course, by simply letting your suppliers finance your assets.  If you think about it, suppliers typically finance working capital already, insofar as they deliver supplies but only receive payment at the end of the month (or even later, in some cases).  Such a situation in effect frees up your money for other purposes, money that is literally working capital!

What you need to do is find a formula for calculating your supplies-to-finances ratio right now so that you can increase and maximize it to your benefit.  One easy to understand formula for supplier-financed working capital is to multiply your total assets by a hundred (to generate an answer in percentage form) and then divide by the amount of your accounts payable (whether monthly or whatever terms you have secured).

One must “think outside the bank” to realize this strategy, but if you think about it, working capital finance is easy when carried on the backs of your suppliers – who have to participate, no matter what!