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 - essentially, 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 all of these is a shortage of available cash. These cash flow problems can even afflict businesses that are doing well by other measures such as sales and margins – lack of cash flow is the number one business killer.

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, you should take immediate action.

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, 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, hoping 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 be proactive with measures that will put your business back on track.

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 is to trade your way out of the problem. If the resources are available, step up your sales and marketing. Sell more to existing customers and tap into new markets.

If the time delay 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
• Consider invoice discounting arrangements, where cash is lent to you by the bank as soon as an invoice is raised
• Keep track of the financial health of your customers and suppliers
• Change payment periods

If there’s no real 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.

Make the time to regularly talk to your bank and you’re 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 are struggling now then please get in touch as soon as possible.