Facing Financial Challenges: The Road to Recovery
With the current economic climate, rising energy prices and high inflation, many businesses are experiencing increasing financial pressures.
Debt can cause distress and worry, but the important thing to understand is that you’re not alone and help is available. The majority of business owners will have been through difficult times at some stage. Businesses often survive, and can even thrive, if issues are addressed early. The key is how you deal with problems when they arise.
Our business finance expert, Gregg Harding specialises is debt management and alternative funding. Here, he provides some useful guidance for business owners, outlining the things you can do to ease financial pressures and start the road to recovery.
When things go wrong
Firstly, let’s dismiss the stigma of debt. There are many reasons why even the most successful of businesses run into financial difficulties. It could be you have grown too quickly, a major customer has gone bust, there has been a change in consumer habits or you have been impacted by external economic forces. Whatever the reason, don’t be embarrassed or afraid to seek help.
Face your fears
The main cause of many terminal financial situations is business owners burying their heads in the sand. Confronting potential issues, exploring your options and taking action early can, in most cases, prevent greater pain later on. It will give you time to speak to potential lenders and talk to suppliers or sub-contractors. However, if you delay, things may escalate quickly and your creditors may be less flexible.
It’s good to talk
Communication, communication, communication! You will find people are often prepared to help – especially your suppliers and funders – as they will not want to see your business go bust. Besides, if your business fails, it is unlikely your creditors will receive the money you owe them. It is a good idea to sit down with them, explain the situation and see if you can work out an informal payment plan. You may find they are sympathetic and if you don’t ask, you’ll never know. Keeping communication channels open may also, in some cases, reduce the likelihood of them taking formal action to recover their money.
Cash flow is key
It is important you create a cash flow forecast for your business. This will give you a clear picture of the cash going in and out. It also helps provide an early warning system and, if you need to agree any payment plans, it will give your creditors an idea of how much you can realistically afford to pay and when you will be back on track. If required, the Access to Finance team can work with you to create a financial forecast for your business.
In dealing with cash flow, there are various actions you can take to help ease the burden:
- Review your business to see where you are making the most money and if there are any areas or products which are making a loss. Are there things you could do to address this (e.g. charge more, make cost-savings or refocus on the profit making areas)?
- Do you have too many overheads/staff? Can you outsource some of what you are doing?
- When the prices of things increase like energy/tax/materials do you review your prices to ensure they are still profitable? It is best to hit these increases head on and pass them on to your clients as soon as possible.
- Put effective credit control procedures in place to reduce late payments from clients.
- Try to arrange payment terms with your suppliers and sub-contractors. If you already have payment terms can you extend them (e.g. from 30 days to 60 days)?
- Can your customers pay earlier or at least pay a deposit?
- Work with your accountant, they are generally great sources of information and some of the larger practices will have their own insolvency department with specialist knowledge.
- Prioritise your debts. Items such as rent, business rates, utility bills and staff salaries should be priorities.
- Time to pay – HMRC have a business support page and helpline (0300 200 3835) that you can call if you are struggling to pay your tax bill.
Reducing staffing levels is probably the hardest decision any business leader will have to make. However, no business can survive indefinitely making a loss. In some cases, making a small number of redundancies could prevent the need for a greater number of staff redundancies further down the line. If you do need to restructure, it is important that this is carried out sensitively and within the law. You can find further information and a step-by-step guide for employers on the ACAS website. You can also speak to an HR consultant about your legal responsibilities and processes.
Seek specialist support
A wealth of professional support and resources are available to help businesses. These include:
Access to Finance
With over 30 years of experience working with SMEs, the Access to Finance programme can provide confidential and impartial support to your business. Our team of business finance experts can work one-to-one with you, assisting with everything from financial forecasting and business plans to identifying and applying for the right funding for your needs. The programme, which has supported over 2,600 businesses across Cornwall and the Isles of Scilly, is fully funded by UKSPF so there is no cost to you.
If you have exhausted all other avenues, you can contact an Insolvency Practitioner. This doesn’t mean admitting defeat. Insolvency practitioners can be part of the solution, often helping companies to recover. For example, they can help with putting in place a Company Voluntary Arrangement (CVA), which is a formal deal made with creditors to ensure debts are repaid over a fixed timeframe and protects a business from legal actions. If a CVA is not viable, there are plenty of other options available and an insolvency practitioner can advise and guide you through the process.
Before contacting them, it is wise to have all your information ready as it will help them come to the right solution for you. As a guide, you will need:
- your last set of accounts
- a list of your debtors/creditors
- what your order book/future sales look like. If there is a good order book then the solution may be less painful and a matter of coming to some arrangements.
British Business Bank
The British Business Bank offers an array of online guides and useful articles for businesses in its Finance Hub.
Mental health and wellbeing professionals
Running your own business can be isolating and it may feel like you have the weight of the world on your shoulders. If you are finding it hard to speak to your partner, family or friends, then there are various organisations that you can talk to like Cornwall Mind.
Always remember that as hard as things may seem right now, it is not the end of the world. There is support available and you will come out the other side, stronger and wiser.