All businesses at some point will have financial troubles. It doesn’t matter how big you are, a startup a big player, or even if you dominate the marketplace, businesses can encounter difficulties at any point. If you find yourself in a bit of a cash crunch, unable to pay bills, suppliers or even payroll, it could be for several different reasons. There could be a fundamental problem with the business model, you could just be unlucky and be hit with a major debt, or perhaps the market isn’t ready for your big ideas.
Even if you find that your business struggling, it doesn’t necessarily have to mean the end of the road. There are rescue routes available, to help get the business out of trouble and move the business forward.
Cashflow troubles, unpaid invoices and mounting debts.
Most businesses will face cashflow problems at some point during the course of their life cycle. Predicting all the incomings and outgoings of a business is difficult and often, unforeseen costs crop up and disrupt a business’s progress. When you take into account tax bills, seasonal differences and changes in the marketplace, it can be difficult to put into place a completely comprehensive cashflow forecast. A cashflow forecast, should, however, give you a good idea of whether the business model can be taken forward and give you an idea of potential profit and losses.
Late paying clients are a common issue for businesses, as often clients will look to take advantage and pay past their agreed terms. Clients who don’t pay on time can massively hold up the processes of a business and can sometimes have a dramatic effect on the movement of money in and out of the business.
Stay on good terms with creditors
As a business if you owe money, it can often be easy to ignore the situation and try to bury your head under the sand. Unfortunately, ignoring a problem doesn’t make it go away and when you owe money, it will just make the situation much worse. If a business is struggling with creditor pressure, it’s vital to communicate with them and try to work out the situation. Most of them will want you to succeed so that they can keep your business, especially suppliers, so finding a solution that suits all parties is vital.
The same principal applies when it comes to paying back bank loans. If you’re concerned about missing payments or potentially breaking an agreement, communicate with your lender and proactively communicate the situation. Banks want to repayment and they are only likely to only recall a loan if they deem that there is little hope of it being repaid. If you stay in contact with them, it’s more likely you will be able to come to an agreement.
If you have mounting creditor debts and you chose to nothing, one or more of them will often try to force your company into bankruptcy via a winding-up petition. Typically, they will try bailiff action first and then if this fails, they will try and close your company.
Take advantage of incoming and outgoing repayment terms
Managing incomings and outgoings effectively is hard work. But being savvy with repayment terms can be essential to maintaining a healthy level of cash flow. If it’s beneficial to the business to pay a debtor on the last day of a contract, there is nothing wrong with doing this. If you are waiting on an invoice and you can’t pay a debtor yet, take full advantage of your repayment terms, until it’s more economically viable to pay the debt.
When it comes to collecting invoices, there is nothing wrong with giving clients a gentle nudge for repayment. This doesn’t have to be aggressive, however, if you do nothing it’s much more likely you will be waiting for your money.
An injection of finances
Almost every business will always want a boost of finances within a business. It sounds like a simple solution, but in reality, getting finances to pull yourself out of trouble is never an easy task. If cashflow is the major problem, being caused by late paying clients, an injection of finance can help regain some stability. Essentially, invoice finance allows businesses to obtain an advance on their outstanding invoices, based on the value of the invoices in question. A factoring company will give businesses a cash injection, which is typically up to 90% of the invoices value. They will then collect the invoice, along with their own fees and before returning the change. The cost of factoring is similar to the interest you would pay on a bank loan, however, often it can be a cheaper solution, with struggling businesses more likely to secure invoice finance.
If your business depends on assets and its assets that are the most important part of the business, getting the right finance for them is essential. If old, broken or inefficient assets are costing the business too much, commercial finance can offer one of the best routes to replacing the equipment. Commercial finance covers several different options such as asset finance and refinancing, both allowing businesses to replace assets, or to upgrade what is already there.
If your business is very unfortunate and gets unlucky with broken equipment which you depend on, asset finance is an excellent option for replacing, without disrupting cash flow too much. This enables businesses to purchase assets over a set period, instead of paying in one large lump sum, which could potentially disrupt cash flow.
Every business, established or otherwise, will face problems at some point during their lifespan. Despite a rigorous planning procedure and detailed forecasts, sometimes it just can’t be stopped. But the sooner a business is able to see problems coming, the better. If an owner does find themselves in a difficult situation, there are financial solutions which can help get the business out of trouble.