Time to put your companies in order

It’s safe to say 2020 has been a year like no other. And with the challenges of COVID-19 and Brexit looming over us for an unspecified time longer, there can be few companies who haven’t considered where they could make savings.

What the CFOs say

A recent survey of CFOs confirms that they view the negative effects of COVID-19 and Brexit as their biggest challenges, with the former overshadowing the latter. Their perceptions of external uncertainty remain at a ten-year high, while any appetite for corporate risk is minimal.

As a consequence, CFOs continue to prioritise defensive balance sheet strategies; reducing costs and increasing cash flow are the top priorities of CFOs by a considerable margin.

Time to act

In the current climate, the conditions and necessity for Corporate Simplification are overwhelming. Corporate Simplification is, put simply, the identification and removal of surplus entities from a group structure. An attractive course of action at almost anytime, given the tangible benefits like cutting costs, complexity and risk.

Whilst groups will always have Corporate Simplification on their agendas, uncertainty regarding how to approach such a project can leave boards delaying taking action. However, numerous acquisitions and changes in management can leave directors responsible for entities of which they have no historical knowledge. Since that also makes them liable for any skeletons in corporate closets, members voluntary liquidation (MVL) is the obvious risk-averse option.

And that’s highly advisable in times like these. Any relatively easy-win is welcome, after all, and as we approach 2021 with so much uncertainty ahead, the benefits of streamlining unwieldy group structures now are inarguable.

Cut complexity, at all costs

Recent research shows there are 100,000+ UK dormant entities registered at Companies House. It’s likely they’re adding little or no value to stakeholders; and since the average annual running cost of a dormant entity is estimated at between £3,000 and £8,000, that amounts to unnecessary costs up to a staggering £800m each year.

Yet for companies who act the benefits accrue rapidly. Clients tell us the typical payback period for Corporate Simplification is 9 to 12 months with further sustainable savings after that.

Time saved, compliance met

Since time is money too, it’s also worth factoring in the reduction in management hours. Time saved on the preparation of tax returns, annual returns and other financial reporting soon mounts up — all for entities that no one will miss when they’re gone.

Full transparency and less corporate governance reduces the risk of compliance failure, and in addition, if and when a group is being packaged for sale, a more transparent structure only increases its appeal. Unnecessary entities can be an issue for buyers and they equate to unwelcome layers of due diligence.

Feedback from clients include:

'This simplification has made a huge difference to the group, from a cost, administration and governance perspective.'
'I wish we had done this much sooner; it just shows how much time is spent dealing with this stuff.'

Another year putting it off is, therefore, another year of wasted time and costs. So by acting now, groups can ensure their business is as streamlined, agile and responsive as it can be for whatever lies ahead. And, no matter how complex the group’s structure, the task of simplifying it needn't be.

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