Businesses can find themselves in serious financial difficulties for various reasons. A key customer can suddenly go elsewhere or turn into a bad debt, sometimes because they have their own money worries. Suddenly losing several important customers can prove disastrous.
Alternatively, your sales can diminish gradually, made worse by increasing monthly costs. Over time, a once profitable business can turn into one that is operating at an unsustainable loss. There can be early warning signs of trouble ahead.
There could be a slump in your sector or a new competitor could win some of your market share. You might suddenly lose sales in overseas markets or serious problems in the UK economy could leave you struggling to cover your costs. So, what can you do if your business gets into financial trouble?
Doing nothing isn’t an option, because problems usually get worse when they’re not addressed. If your business is to survive, it takes hard work, resilience and a willingness to take difficult decisions. Rescuing a business can be very stressful, too, and success is not guaranteed. You must remain well organised and keep a close eye on your accounts.
You can’t do it all yourself. If not you, you’ll need to work closely with those who manage your business finances and sales. You’ll also need to get all your people fully behind you. Survival is a team game and your employees’ ideas and efforts could prove critical. You also need to ensure they stay focussed and motivated, while the communication between you and them must remain excellent.
This could be the first time you’ve faced such a serious problem, but you can benefit from the knowledge of others with more experience. Your accountant could play a key role in finding solutions and many specialise in business rescue/turnaround. If you don’t have an accountant – find one. You might also need tailored HR advice (if you need to make redundancies) or legal advice (if you’ve signed lease agreements, etc).
If you are to get out of trouble, first you must know the scale of the problem you face, which is easier if you work with cash flow forecasts. Adjusting your cash flow forecast, accounting for lost sales, will reveal how much you need to cut your costs, boost your sales or (most likely) both.
Once you know what you need to achieve, you can plan and act accordingly. Create a concise, practical survival plan that includes key targets and objectives (e.g. cut costs of Y by 12%, increase daily sales of X by 7%, etc).
You need to focus first on solving your immediate cash flow concerns. Your costs may have been well managed until now, but losing a key customer can change things dramatically.
Re-evaluate all of your costs and find ways to make savings. Rule nothing out. Businesses often have to stop using freelancers or make redundancies when in trouble. Try to negotiate better deals with all your suppliers. Don’t stop all spending on marketing (a common mistake), because it can see your sales plummet. Create a new marketing plan.
Your natural reaction might be to target new customers, but it’s quicker, easier and cheaper to sell to existing buyers. Could you cross-sell new products or services to them? Would customers buy more if you gave them a small discount?
Could you increase your prices slightly? That could make a big difference. Could you sell via other channels or sell more via those you already use (e.g. online). Stop wasting time trying to sell things that aren’t selling. Ask your people for ideas on how you can become more productive, efficient and profitable.
Your bank may be able to offer you advice and short-term cash flow solutions, whether through a loan or other options (eg invoice finance). To help ensure that your cash flow improves, tighten up your credit control system.
Once your business is on a more sure-footed course, fix the root cause of your problems, whether that’s not relying too much on too few customers or otherwise better managing risk. If things don’t improve and ultimately you cannot save your business, seek professional advice as early as possible on your rights and responsibilities. That process, too, however difficult, must be well managed.
Government website GOV.UK offers advice on liquidating a limited company. The rules are different if you want to stop being self-employed.
Mark Williams is an editorial consultant, freelance content writer, business journalist and editor. For 15 years, he has specialised in writing content for and about UK SMEs. For specific guidance on Britain leaving the EU, read our article on preparing for Brexit.
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