Is Your Business Struggling With Cash Flow?

Generally, if a business is profitable, it is deemed to be a success. However, this one-dimensional view can cover many internal financial issues. Healthy cash flow is key to a business’s long-term survival. Without good cash flow, an unexpected expense or a client not paying on time can be a fatal blow.

If there is not enough income to cover day-to-day expenses such as rent and wages, your company is at risk. High-interest cash flow loans or risky financing agreements are not the way to go. Fortunately, there are solutions that allow you to avoid insolvency.

Why Are You Struggling With Cash Flow?

Every year 50,000 UK businesses close due to poor cash flow, it is deemed a prevalent issue, especially for new businesses. Ever since the pandemic, businesses have stretched cash flow to breaking point in a bid to financially recover. On top of this, there are certain sectors such as construction and logistics that are inherently at risk due to their established payment structure.

 Some of the most common causes of cash flow problems are:

• Low number of sales.
• Ineffective financial management.
• High interest loans.
• High overheads.
• Late/Non-payment from customers.

Cash flow is usually a result of either a lack of financial planning, an economic downturn or a combination of both. As with many issues, the sooner the problem is dealt with, the quicker a positive outcome can be reached. Cash flow is a priority issue, as one unexpected expense could be enough to close your business. Unfortunately, cash flow issues are unavoidable sometimes but, the good news is that there are options available.

Is There Anything You Can Do?

For many business owners, quick finance is the first solution they can think of to resolve their cash flow issues. This is the last thing you should do. By taking quick, high interest loans you are just extending the decline of your business and, increasing your personal exposure as a result.

So do not sign a personal guarantee, do not take out an invoice financing/factoring agreement and do not enter into formal insolvency such as administration/CVA. There are always fewer formal alternatives available, this is why we recommend consulting with business specialists before making any final decisions.

There are a series of changes you can make immediately to improve your business’ cash flow and overall health, these include:

• Raising prices.
• Cutting costs.
• Working with suppliers.
• Implement a good invoice system.

These changes may help to free up working capital and allow you to trade out of your current situation. However, if the underlying problems of your business derive from high levels of debt, unpaid invoices or HMRC arrears, these changes will not alter your situation.

Often high monthly payments are enough to put a business in the red. For example, we recently helped a client who was paying £8,500 per month for a CBILS loan taken to keep his business running. But with a significantly reduced monthly payment, he was able to keep the company trading.

If your business is dealing with unmanageable debt, you will need to take drastic action to prevent formal insolvency. This requires the help of dedicated business insolvency experts to negotiate and manage your creditors and ensure there is no personal consequences for directors.