Struggling financially

If you are aware of what may lie ahead, you can anticipate and avoid problems.

Every business has different challenges, but there are a number of familiar scenarios. These include:

• Initial underfunding - this is a common problem 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, it won’t be able to pay its way.
• Rapid but poorly planned growth - sudden expansion can require investment long before the associated revenues come in.
• Too much money tied up - cash invested in non-liquid assets, such as stock or machinery, may leave you short of cash.
• Late payment - poor invoicing and debt-chasing processes can be really costly.

The common factor in all of the above 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. 

In order to survive, the money coming into a business every month, plus any reserves and loan facilities must at least match your outgoings.
So 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 the following questions:

• Are sales falling?
• Are you losing market share?
• Is your reputation suffering when compared to your competitors?
• Are you being forced to borrow more in order to cover operational costs (rather than investment)?

Is it becoming increasingly difficult to pay creditors?

If the warning signs are there, act quickly. Initially, problems may not seem that serious. Sales may be slightly down or the cash coming into the business may not quite meet the outgoings.

The business carries on as normal in the 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 may be difficult to pay staff.

The key is to be pro-active with measures that will put your business back on an even keel.

What should I do

By spotting the early warning signs, you will 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 the raising of an invoice and the customer paying is causing cashflow problems, there are a number of possible solutions. These include:

• Focus on winning business that will generate cash quickly.
• Tighten credit control. Make sure invoices are sent out on time. Chase payment when it becomes due.
• Consider factoring or 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 is no real chance of sales improving, then you should consider other measures such as selling assets, cutting staff and reducing costs and/or inventory in order to free up cash.

Make the time to regularly talk to your bank. For instance, if your problems are caused by a lack of available finance due to overly rapid growth, a bank is more likely to provide the funds if the problem is identified early and brought to its attention.

Similarly, the bank will be more willing to provide solutions such as invoice discounting if it’s clear that management has 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.

If you've already missed one or more payments, don’t panic, we are here to help. You may have already received some form of contact from us and we understand that during times like these it can feel easier to avoid a conversation with us and hope the situation improves, but it's really important that you do.

When you contact us, you'll be chatting with dedicated colleagues who are here to support you and discuss your current situation. You may be asked to complete an income and expenditure form so they can see what solutions are available for you.  Having details of your income/outgoings to hand would be helpful.

Please get in touch today for more information on how we can help. 

If you know you are going to miss a payment please get in contact as soon as possible so we can support you.

Its really important you get in touch. When you do, you'll be speaking to dedicated colleagues who are here to support you and discuss your current situation. You may be asked to complete an income and expenditure form so they can see what solutions are available for you.

You don’t have to be struggling with your finances to get our help, if you're worried things might change in the future and you want to take control now. Check out our content on managing your account or book in for a financial health check at a time that suits you.