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How to Get Your Business Out of Financial Trouble

By: Edward Wade


How to Get Your Business Out of Financial Trouble

Any business can encounter problems. It happens. It doesn’t matter how big or successful you are, whether you are a startup, a big player or even if you rule the whole market place, things can go wrong. You might find yourself in a cash crunch, struggling to pay bills, or even payroll. It could be because the business model is wrong, or your business could simply be unlucky and get hit by a major debt.

For those businesses that find themselves struggling, it doesn’t have to mean the end of the road. There are rescue and restructuring routes you can take to settle the business down and begin moving it forward.

Debts, cashflow problems and late payments

A lot of businesses encounter cashflow troubles at some point in their life span. Managing all the incomings and outgoings of a business sounds simple, but in reality, it’s much harder. Predicting potential shortcomings over several years is difficult, especially when taking into account tax bills, seasonal differences and changes in the market place.

Although you can never predict exactly what your cashflow is going to be like, a well thought out and planned cashflow forecast can give you a great idea of where the business could be headed and allows you to plan ahead and be prepared. Preparation like this should be able to give you a good idea as to whether or not eh business model is likely to work.

A lot of business fall into debt and troubles with cashflow through no fault of their own. Late paying clients are a common problem, especially for new businesses who can often be taken advantage of. 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.

Give your cashflow a boost

Boosting finances within a business sounds like a simple solution that almost every business wants to do. But if the shortfalls from the business are coming from a slowdown in cashflow, boosting your finances can help the regain some stability. Invoice finance is a fantastic solution for those struggling with unpaid invoices. Essentially it allows businesses to obtain an advance on their outstanding invoices, based on the value of the invoices in question.

A factoring company will give the business a cash injection, normally up to 90% of the invoices value, before collecting the invoice themselves along with their own fees and then returning the change. The cost of factoring in the short run, can be more than the cost of a bank loan, however, in the long run it’s a much better solution.

If it’s old assets, or inefficient assets costing the business too much, commercial finance can offer a good route to replacing outdated equipment. Commercial finance covers a few different options such as asset finance and refinancing, but they both allow a business to replace damaged broken assets, or to upgrade on what is already there.

If your business is counting on machinery and you get incredibly unlucky with broken machinery, asset finance may be the best available option. This enables businesses to purchase assets over a set period of time, instead of paying in one large lump sum, which could potentially disrupt cash flow. On the other hand, if your business is asset rich but cash low, re-finance would be the best way to move forward. This allows businesses to borrow money which is based on the value of its assets, this can help raise money and aid cashflow.

Talk to your creditors

For a lot of businesses, when you owe money, it’s easy to ignore the situation and bury your head under the sand. This is a massive mistake and it will only make the situation worse, most people, especially suppliers want businesses to succeed and will more than likely work on a solution with you. In situations like this, it’s vital to talk to outstanding creditors and talk through the situation.

If you are having troubles paying back any bank loans and are concerned about breaking any agreements, either because you will miss a payment or because some other requirement will not be met (e.g., liquidity requirements), proactively communicate with your banker regarding your situation.

Remember, your banker is primarily interested in being repaid. The bank will likely only call your loan if it assesses that there is little hope of being repaid otherwise. Whereas if you communicate with your lender and explain the situation, it’s more likely you will be able to come to an agreement.

Often if your situation with a creditor is left without any action, they can pull together and can try and force your company to go bankrupt via a winding-up petition. Usually they will take bailiff action first, but if not, they can try and force a compulsory liquidation.

All businesses established and unestablished will undoubtedly struggle at some point. Even if you go through a rigorous planning procedure, problems will occur. The sooner a business can see them coming the better, however, if an owner finds themselves in a sticky situation, there are financial solutions to be found which can help get businesses out of trouble.

Published: November 21, 2018

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Edward Wade

Edward Wade is a journalism graduate from Sheffield and a writer for Wilson Field, a financial solutions services company. He is an avid business writer who focuses on advice for start-ups and SMEs.

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