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The business administration process

Business is easy – as long as your assets exceed any liabilities. But what happens when they don’t? Pádraig Floyd explores the unsettling subject of administration.

Administration is a word that strikes fear into business owners and employees alike. It signifies the end of a company, employment and all the associated hard work – even if that is not necessarily the reality. And there’s a lot of it about.

The high street is suffering sustained instability as it adjusts to different consumer shopping patterns and the onslaught of online traders.

The casual dining sector – pubs, cafes and restaurants – is also struggling. In the past year, TV chef Jamie Oliver lost one of his Barbecoa restaurants – and very nearly his Jamie’s Italian chain but for a company voluntary arrangement. Meanwhile, Patisserie Valerie imploded after a financial scandal was discovered and fell into administration.

Travel is also under intense pressure from rising fuel prices, Brexit and currency fluctuations. FlyBMI recently entered administration, while Flybe was sold to Connect Airways.

Insolvency is quite simply the inability of a business to cover its debts. There are two tests. The first is assets not exceeding liabilities, but the most common one used is the cash flow forecast.

In 2018, company insolvencies rose to 17,439 and administrations increased by 11.2%. But what exactly is administration?

This is an extract from the Business & Management Magazine, Issue 273, April 2019.

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