When the numbers no longer add up and cash is running thin, the first instinct of many business owners is to cut costs indiscriminately or seek emergency financing. Both reactions are understandable, but they rarely address the underlying problem. Cutting without a prior diagnosis can destroy the operational capacity that makes the business viable. Seeking financing without a credible plan guarantees rejection by the bank or, worse, piles additional debt onto a structure that can no longer support it.
A viability plan is the structured alternative to panic. It is the document that transforms a financial crisis into an ordered process: it pinpoints precisely what has gone wrong, quantifies the gap between the current situation and sustainability, and proposes a map of concrete measures with verifiable deadlines. When properly prepared, it convinces banks to refinance rather than enforce guarantees, and provides directors with the legal protection they need to demonstrate they acted with the diligence required by law.
This guide explains what a viability plan is, when one is needed, what it must contain to be credible, and what legal options exist if the plan alone is not sufficient.
What a Viability Plan Is — and What It Is Not
A viability plan is not a business plan. This distinction matters, and banks understand it well.
A business plan is prepared for a new company or a growth project: it starts from zero, projects a market opportunity and sets out how to capture it. Its typical reader is an investor evaluating potential.
A viability plan is prepared when the business already exists, already carries debt, and already has problems. Its starting point is the crisis, not the opportunity. Its typical reader is a bank deciding whether to refinance or enforce, a creditor assessing whether to accept a haircut, or a judge analysing whether the debtor deserves the protection of the insolvency framework.
The sole objective of the viability plan is to demonstrate that the underlying business is viable if the right corrective measures are applied. Not that it can grow, not that it has potential, but that it can survive and meet its commitments. This distinction shapes the tone, content and methodology of the document.
In practice, a viability plan serves three simultaneous functions. First, it is a diagnostic tool: it forces the company to understand its actual situation with precision — which frequently differs from management’s perception. Second, it is a negotiating instrument: without a credible, independent plan, no bank will open serious refinancing discussions. Third, it is a liability shield for directors: preparing and presenting a viability plan to creditors evidences that management acted diligently, which has direct implications under Article 367 of the Spanish Companies Act (Ley de Sociedades de Capital, LSC) and in any subsequent assessment of culpable insolvency.
When Your Business Needs a Viability Plan
Five situations, individually or in combination, signal that a company needs a viability plan as a matter of urgency. In some of them, preparing one is not merely advisable — it is legally necessary.
First: losses reducing net equity below 50% of share capital. Article 363.1(e) of the Spanish Companies Act (Ley de Sociedades de Capital) requires compulsory dissolution when accumulated losses reduce the company’s net equity below half of its share capital. Article 365 LSC then obliges directors to convene a general meeting within two months to resolve either dissolution, capitalisation, or the filing of an insolvency petition. Failure to do so triggers Article 367 LSC, under which directors become jointly and severally liable for company debts incurred after that point. A credible viability plan, approved by the general meeting, is the instrument that allows the meeting to resolve a recapitalisation or restructuring rather than dissolution — breaking the liability trigger mechanism. This is a critical point for both Spanish directors and the management of foreign parent companies with Spanish subsidiaries.
Second: breach or anticipated breach of banking covenants. Most loan agreements and credit facilities include financial covenants requiring periodic compliance: leverage ratios, minimum EBITDA, interest coverage. When a company foresees that it will miss a covenant at the next review date, it must act before the bank formally declares the breach and activates loan acceleration clauses. The viability plan is the documentation that opens a preventive negotiation with the bank before the situation crystallises as a default event.
Third: persistent cash-flow pressure. If the company has been unable to pay wages or suppliers within agreed terms for two or three months, or if it systematically resorts to overdraft or working-capital financing to cover structural obligations, the liquidity crisis has ceased to be cyclical. Cash flow is the most visible symptom of a problem that may have deeper roots: insufficient margins, an excessively fixed cost structure, poorly managed working capital, financial debt disproportionate to operating cash flow, or a combination of several factors. Without a rigorous diagnosis, liquidity patches perpetuate the problem without solving it.
Fourth: application for bank refinancing. No financial institution will seriously renegotiate the terms of a credit facility without an independent viability plan supporting the request. Banks have their own risk analysis departments and can readily distinguish between a plan prepared by the company itself — which by definition is optimistic and lacks credibility — and one prepared by an independent adviser using a verifiable methodology. The requirement for a viability plan is not a formality; it is the necessary precondition for the bank to be able to justify internally, to its own risk committees, the decision to refinance.
Fifth: pre-insolvency communication or restructuring plan. Law 16/2022 of 5 September, transposing EU Directive 2019/1023 on preventive restructuring frameworks, introduced the restructuring plan (plan de reestructuración) under Title III of the Spanish Insolvency Act (TRLC) as an out-of-court instrument with the possibility of judicial homologation. The restructuring plan requires a viability plan as its central supporting document. Under Articles 583 and following of the TRLC, notifying the commercial court that restructuring negotiations are under way triggers a temporary stay of individual enforcement actions — the so-called 3-month negotiation shield — giving the company breathing room to negotiate. Without a robust viability plan, this procedural shield lacks any foundation.
The 6 Components of a Credible Viability Plan
A credible viability plan is not a 200-page document full of bar charts. It is a rigorous analysis that answers six questions precisely — questions that any experienced creditor will ask. Each component has its own logic and its specific role in the negotiation.
1. Financial Diagnosis
The financial diagnosis is the starting point and, frequently, the moment at which the company discovers that its situation is more serious than it thought — or occasionally, somewhat less serious than it feared.
The diagnosis works with real data, not accounting data. The distinction matters: the accounts may show positive EBITDA while cash bleeds because the business finances its customers with 120-day payment terms. The analysis starts from actual cash flow: what comes in, what goes out, when, and how many months of runway the business has without external intervention.
The key metrics of the diagnosis are adjusted EBITDA (stripped of extraordinary items and non-recurring charges), net debt (gross financial debt less available cash), the leverage ratio (net debt over EBITDA) and the monthly burn rate in a no-intervention scenario. The diagnosis also covers working-capital analysis: days sales outstanding, days payable outstanding, inventory levels and the financing needs of the operating cycle.
Banks want to know, before anything else, how many months of runway the business has without intervention. This figure determines the urgency of the process and the negotiating margins available.
2. Root-Cause Analysis
Root-cause analysis is the most important component of the plan and the one that companies most frequently underestimate. Without it, any corrective measure is a shot fired without aiming.
The central question is whether the crisis is cyclical or structural. A cyclical crisis has an external and temporary cause: the loss of a client representing 30% of revenue, the impact of a commodity price spike, the effects of a demand shock in hospitality or tourism. In these cases, the underlying business model is sound and the problem can be resolved with time and a financial adjustment to weather the storm.
A structural crisis has internal and permanent causes: a business model exhausted by technological or market change, a fixed-cost structure incompatible with sector margins, a level of over-leverage that prevents investment and consumes all cash flows in debt service. In these cases, the viability plan cannot simply buy time: it must propose a transformation of the model or, if transformation is not possible, articulate an orderly exit that maximises creditor recovery.
This distinction determines whether the business is salvageable and, consequently, whether it makes sense to develop a continuity plan or prepare an orderly liquidation.
3. Corrective Measures Map
The corrective measures map is where the viability plan becomes concrete — or loses credibility. Generic assertions such as “we will reduce costs”, “we will improve efficiency” or “we will win new customers” carry no weight in a negotiation with banks.
Every measure must be quantified, scheduled and assigned to a responsible owner. The standard structure distinguishes four categories:
Cost reduction: line-by-line identification of costs that can be eliminated or reduced, with the annual saving calculated. For example: closure of a loss-making business line (€X in direct cost savings), headcount reduction through a collective redundancy procedure or negotiated agreement (€Y in wage-bill savings), renegotiation of lease agreements (€Z in annual savings), elimination of non-essential external services.
Working-capital improvement: reduction in average collection period (cash-flow impact of €X), review of terms with key suppliers, optimisation of inventory levels. Working-capital improvement has an immediate effect on cash and is frequently the first lever to pull.
Divestments: sale of non-strategic assets, loss-making subsidiaries, or minority stakes without strategic value. Divestments generate immediate cash to reduce debt and are especially valued by banks because they demonstrate that the company is willing to make real sacrifices.
New revenue streams: accepted only when underpinned by concrete evidence — a signed contract, a committed customer, a product launch with tested demand — not by optimistic projections unsupported by fact.
4. Financial Projections
The financial projections are the quantitative translation of all the corrective measures. A plan that presents projections only under the optimistic scenario immediately loses credibility with any experienced analyst.
Projections cover a horizon of three to five years and include three financial statements: income statement, balance sheet and cash flow. The level of detail must be sufficient for a bank analyst to identify the key assumptions and challenge them.
The plan must include a base case (the most probable, built on conservative but realistic assumptions) and a downside scenario (what happens if measures take longer to implement or if revenues are 15–20% below forecast). Sensitivity analysis shows how results vary against changes in key variables: selling price, sales volume, raw material costs, interest rates.
In reviewing projections, banks pay particular attention to the evolution of free cash flow because that is the metric that determines debt repayment capacity — not accounting profit, not EBITDA, but cash available after capital expenditure, working capital and tax.
5. Milestone Calendar
The viability plan is not a static document presented once and filed away. It is a commitment against verifiable milestones that creditors will monitor throughout the restructuring period.
The calendar is structured on a quarterly basis and includes the operational and financial milestones committed to: implementation of cost-reduction measures, completion of the divestment, receipt of new financing, achievement of the target EBITDA. Each milestone carries a date, a responsible party, and an objective verification criterion.
The plan must also specify what happens if a milestone is missed: whether there is a trigger mechanism activating further negotiation, whether an acceleration clause applies, or whether additional security is activated. This contingency mechanism is what gives creditors confidence that the plan is enforceable, not merely a statement of intent.
6. Creditor Proposal
The creditor proposal is the centrepiece of the negotiation and must be realistic for both sides. A plan that proposes unacceptable terms for creditors will never be approved; a plan that demands no real sacrifice from the company will not be taken seriously either.
The standard tools in a Spanish debt restructuring are:
Haircut (quita): reduction of outstanding principal. This is the highest-impact measure for creditors and the hardest to negotiate. In Spain, for a haircut to be binding on dissenting creditors within a restructuring plan, qualified majorities are required under Title III of the Insolvency Act — broadly analogous to the cramdown mechanics of US Chapter 11.
Payment deferral (espera): extension of the amortisation schedule. Converts short-term debt into long-term debt, relieving immediate cash pressure without reducing the total amount owed.
Principal moratorium (carencia): a period — typically one to three years — during which the company services interest only, without repaying principal. This releases cash flow during the critical plan implementation phase.
Debt-to-equity conversion: financial creditors become shareholders. This is the most drastic formula and is generally reserved for situations where the required haircut is so large that banks prefer to take an equity stake and recover their investment through future company appreciation.
Additional security: in some cases the company can strengthen existing collateral — pledging assets, providing personal guarantees from shareholders — in exchange for better restructuring terms.
The Process: Timeline and Steps
The preparation of a viability plan follows a logical sequence that, under normal conditions, unfolds over eight to ten weeks. In situations of extreme urgency, we have delivered full diagnoses in ten days.
Weeks 1 and 2: rapid diagnosis. The advisory team accesses the company’s data room (banking contracts, financial statements for the past three to five years, treasury statements, receivables and payables ageing, key contracts with customers and suppliers). Interviews are conducted with the management team to cross-reference internal perception against the data. By the end of this phase the adviser has a complete picture of the actual financial situation and can make a preliminary viability assessment.
Weeks 3 and 4: detailed financial analysis and identification of measures. With the full diagnosis in hand, the team deepens the root-cause analysis and identifies the range of possible corrective measures, quantifying the impact of each. At this stage the team also determines what type of restructuring is appropriate: out-of-court, pre-insolvency with court notification, or formal insolvency proceedings.
Weeks 5 and 6: financial modelling and scenarios. The financial model is built with three-to-five-year projections, multiple scenarios and sensitivity analysis. The model is the quantitative basis for the creditor proposal.
Weeks 7 and 8: plan drafting and review. The diagnosis, root-cause analysis, measures map and projections are integrated into the final document. The plan is reviewed internally with the company’s management team before presentation.
Weeks 9 and 10: presentation to banks and creditors; commencement of negotiation. The adviser presents the plan to the banking pool and relevant creditors. This phase may extend depending on the complexity of the negotiation and the number of parties involved.
What Happens if the Plan Fails: Legal Alternatives
A well-prepared viability plan has a high probability of being accepted by creditors when the underlying business is viable. But that is not always the case, and creditors do not always reach agreement in time. When the plan does not progress, the Spanish Insolvency Act offers several alternatives, ordered from least to most costly and complex.
Restructuring plan (Title III TRLC). This is Spain’s equivalent of US Chapter 11. It allows negotiations with creditors under the protection of the law, with the ability to extend the effects of the agreement to dissenting creditors if the statutory majorities are reached. Law 16/2022 modernised this instrument following the standards of EU Directive 2019/1023. The viability plan is the central document of the restructuring plan. See our guide on restructuring for a full analysis of this mechanism.
Special procedure for micro-enterprises. Law 16/2022 introduced a simplified procedure for companies with assets below €700,000, fewer than ten employees and annual turnover below €1,400,000. The procedure is faster and less costly than standard insolvency proceedings, with standardised forms and reduced timescales. It is the most appropriate option for small business owners who need the protection of the insolvency framework without bearing the costs of a complex formal process. More details are available in our guide on the micro-enterprise procedure.
Insolvency proceedings (concurso de acreedores). When the restructuring plan does not progress, or when insolvency is already definitive, formal insolvency proceedings are the judicial process that orders the situation of an insolvent company under the supervision of the commercial court (juzgado de lo mercantil). The proceedings do not inevitably lead to liquidation: they can conclude in a convenio (a court-approved arrangement with creditors that allows the company to continue operating) or in liquidation. Filing for insolvency is mandatory within two months of the date the debtor knew or should have known of its insolvent position (Article 5 TRLC). Delay exposes directors to personal liability and may result in the insolvency being classified as culpable.
Second Chance Law (Ley de Segunda Oportunidad). This is the mechanism for natural persons, including self-employed individuals and business owners who have personally guaranteed company debts. It allows the discharge of unsatisfied liabilities (exoneración del pasivo insatisfecho, EPI) following asset liquidation, releasing the individual debtor from debts that cannot otherwise be paid. Law 16/2022 broadened access to the mechanism and removed several of the obstacles that existed under prior legislation.
Case Study: From €4M Losses to Positive EBITDA in 14 Months
Viability plans work when they are prepared rigorously and when the company is willing to implement difficult measures. The following case illustrates what is possible.
An industrial group with €45 million in revenue and four subsidiaries had accumulated €4 million in losses over two consecutive years of margin compression, with a debt structure consuming 40% of EBITDA in interest service. The banking pool — three institutions — had activated the covenant review clause and demanded a viability plan as the condition for not enforcing their security.
Our team prepared the plan in eight weeks. The diagnosis identified that the crisis was partly structural: one of the four subsidiaries, a distribution business, had operated with negative margins for three consecutive years and was draining resources from the group. The other three subsidiaries were profitable at the operating EBITDA level but were being strangled by the financial cost of debt originally taken on to fund precisely that loss-making subsidiary.
The plan proposed three principal measures: divestment of the loss-making subsidiary, sold to a sector competitor for €3.5 million; refinancing of €12 million of debt with an extension of the amortisation schedule from five to ten years and a two-year principal moratorium; and a cost-reduction map of €2.8 million per year across the remaining three subsidiaries, primarily through reorganisation of the sales force and consolidation of support functions.
The banking pool approved the plan within ten weeks. By month fourteen, the group reported positive EBITDA for the first time in three financial years.
Act Before the Bank Calls
The difference between a viability plan that works and insolvency proceedings that destroy value is rarely the severity of the financial situation. It is almost always timing: the earlier you act, the more options are on the table, the greater the negotiating margin, and the more likely a positive outcome for all parties.
Business owners who contact us when the situation still has a solution typically arrive months too late. They have waited for the bank to call, for a supplier to cut supply, or for a creditor’s solicitor to file a claim. By that point, the range of available options has narrowed considerably.
If your business shows any of the five warning signs described in this guide, the time to act is now — not when external pressure forces the issue.
We offer an initial confidential consultation at no commitment, to assess your company’s situation, determine whether a viability plan is the right instrument, identify which process would make most sense, and indicate realistic timescales. The initial analysis is entirely confidential and generates no subsequent obligation.
Our restructuring and corporate finance teams work alongside specialists in valuations to deliver a comprehensive service covering everything from diagnosis to creditor negotiation and plan implementation.
