Help; my Business is Running Out of Cash!

In an ideal world, businesses will earn enough to cover their outgoings, and then some for a healthy profit. Sadly, real-life seldom follows these ideals, and companies can find themselves lacking the funds to excel into the future, or even keep their heads above water.

As a business owner, if your business is running out of cash, you should determine the reasons why and take the necessary steps to alleviate the problem.

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Current funds won’t cover it

Occasionally, a business may need to expand, either temporarily to cover a large order, or as a more permanent move as futureproofing. Ideally, the business would have the funds to cover this in its savings, but this isn’t always possible. There are several commercial finance options available for young businesses looking to expand, or start-up companies who might need some extra cash to tide them over.

Which is best for you will depend on your circumstances. If you’re looking to release funds from the business’ existing assets, you can explore asset financing or hire purchasing, which enable you to take out loans based on the value of your assets, or get the very best equipment on a monthly rate. If you’re struggling to meet a deadline or in the short-term, a bridging loan might be the answer.

It’s important that you only borrow what you can realistically afford to repay. Reassessing which of your outgoings are essential as opposed to luxuries would be advisable at this point too.

Payments are late

A bane of many a business owner is a client who doesn’t pay on time. Not only does it negatively impact your cash flow, but it also risks souring relationships between client and supplier. Whether the client is short on cash themselves, or they’ve just forgotten to pay you, circumstances beyond your control mean this can’t always be avoided, but thankfully, there are ways to minimise their impact. One of those options is invoice financing; where a third party lends your company money against the value of the unpaid invoices.

I can’t cover my liabilities

It’s a nightmare scenario; your business has got more outgoings than income, and what’s left won’t cover all your obligations. If you find yourself trading while insolvent; taking on new work whilst knowingly unable to pay what you owe, you could end up in a lot of trouble if you don’t act appropriately. 

If you’re behind on your payments on an almost monthly basis, to the point you’re struggling to cover supplier costs, there may be a fundamental issue with the business. If you’ve received an unexpected ‘big debt’, it may just be a cash flow issue, and commercial finance could help. If the business is commercially viable without its debts, a formal repayment plan may be the best way forward, in which you’ll pay back what you can afford over five years. 

If you’re unsure as to what to do and need some advice, speak to an insolvency practitioner. These licensed professionals will assess your situation and decide how to proceed based on what you want for the business.

My creditors are chasing me

Even worse than finding you can’t cover your outgoings is your creditors finding out you haven’t paid them and chasing you for it. After the letters and phone calls lose their effectiveness, they could resort to County Court Judgements, statutory demands, and bailiffs might even visit you. Depending on the amount of debt and the viability of the business, a repayment plan might not be suitable. 

If the business has a genuinely viable future but needs a complete restructuring, administration might be the best way forward. However, if the business is beyond repair, you could be better off closing via a voluntary liquidation. If you don’t do anything, your creditors may try to wind you up through a compulsory liquidation, one which you will have almost no control over.

Summary

When your business starts to run out of cash, you must identify what’s causing the shortfall and the steps you can take to set things right. Make sure your expenses are essential for your business and not luxuries you can go without if squeezed. Consider a short-term loan if you need a small amount of cash to cover something. Invoice financing can help bridge a gap if a client is late in paying. If your business has become insolvent, you should consider a formal repayment plan, or if the debt and creditor pressure is so severe that the company could be forced into liquidation, you should close it voluntarily first.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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