Struggling financially

Every business has its own challenges, but we see some familiar scenarios. These include:

• Initial underfunding - this is a common problem and is often due to underestimating the cash required.
• Insufficient sales and/or inadequate profit margins - if you can’t sell enough products with the right profit margin, the business won’t be able to pay its way.
• Rapid but poorly planned growth - sudden expansion often needs investment long before the associated revenues come in.
• Too much money tied up - cash invested in non-liquid assets, such as stock or machinery, might leave you short of cash.
• Late payment - poor invoicing and debt-chasing processes can be really costly.

The common factor in these examples is a shortage of available cash. Cash flow problems can even affect businesses that are doing well by other measures such as sales and margins. 

For your business to survive, the money coming in each month, plus any reserves and loan facilities, must at least match your outgoings.

Make forecasts for the months ahead, and look at sales and expected cash flow. If they begin to fall below forecasts, take control and act quickly.

You should regularly ask yourself these questions:

• Are sales falling?
• Am I losing market share?
• Is my reputation suffering compared to competitors’?
• Am I borrowing more to cover operational costs?
• Is it getting harder to pay creditors?

If the warning signs are there, it’s best to act quickly.

Problems might not seem that serious to start with. Sales might be slightly down or the cash coming in might not quite meet outgoings.

Often, businesses will carry on as normal, living in hope that next month’s cash flow and sales figures will improve. However, if figures don’t improve, the business could find itself inundated with demands from suppliers and it might be difficult to pay staff.

The key is to take control with measures that will help your business recover and move forward.

By spotting the early warning signs, you’ll be in a much stronger position to put things right.

For instance, if your cash flow difficulties are related to sales figures, then a first step could be to trade your way out of the problem. If the resources are available, ramp up your sales and marketing. Sell more to existing customers and tap into new markets.

If the time between raising invoices and customers paying is causing cash flow problems, there are a few things you can try. You can:

• Tighten credit control. Make sure invoices are sent out on time. Chase payment when it becomes due
• Explore invoice finance options, where you could borrow against the value of your existing unpaid invoices
• Keep track of the financial health of your customers and suppliers
• Change payment periods

If there’s no chance of sales improving, then you can consider other measures. Free up cash by selling assets, reducing the number of employees, or reducing costs and/or inventory.

If you make time to regularly talk to your bank, you'll be more likely to find the help you need when you need it.

For instance, if rapid growth has left you short of cash and you bring this to your bank’s attention early on, they’re more likely to provide the funds you need.

Similarly, they’ll be more willing to provide solutions such as invoice discounting if it’s clear that you’ve been quick to address a problem.

If your financial situation threatens your ability to meet existing repayment obligations, banks are more likely to be sympathetic if you talk to them early and present a credible business plan. Investors (if you have them) should also be kept aware of the situation.

If you're struggling now, please get in touch as soon as possible.