Avoid New Year Insolvency
It’s tempting to not think past the end of December and the Christmas break, but a little pre-planning now could save you heartache and insolvency later.
Inflation, interest rate rises and the cost of living will continue to impact cashflows so now’s a great time to look at your business and see what you can do to start the new year with a fresh approach.
Analyse your current cash flow
If you don’t already, you should get a clear idea of where your business is financially. Take account of your debtors and creditors and ensure you have up to date management accounts. Knowing exactly where you stand will arm you with the knowledge to make the best choices for your business.
With your management accounts you can make a realistic cash flow projection for the coming months. Identify where you’ll experience difficulties, like seasonal changes in demand or VAT payments coming due. The big question is: does it look like you can keep trading?
Here’s a basic list of things you can change to improve your processes, to help prevent your business from being in a cash flow crisis again:
- Invoice clients promptly (and ensure payment details are set out clearly on the invoice)
- Write clear payment terms (if you have a client who’s routinely late paying their invoice, consider late payment fees!)
- Ask for full or partial payment for your services up-front.
- If you’re not already, offer electronic payment! Make it as easy for invoices to be paid as possible.
- Make sure to chase outstanding invoices!
See our article on managing your cash flow if you need additional advice.
Generate income
You will need to find ways to increase your income through this unstable period in your company’s history. There are a lot of ways to do this, but not all of them will be right for you and your business. Ultimately you will have some tough choices to make, and these are a good place to start.
Reduce your stock
Having a lot of excess stock on hand might make you feel comfortable, but it’s money that you can’t spend. Consider your expected order volume, and reduce your current inventory so that you run as close to the wire as you reasonably can. Selling off stock or cancelling an upcoming order will inject some money into the business when you most need it.
Don’t discount your product
It might be tempting to drop the price of your products to generate more sales but doing so takes money from your bottom line. It’s better to maintain your current pricing and find ways to create value-added propositions in the shape of low-cost or free extras. These things don’t cost much (or anything), but generate goodwill and increase sales without directly impacting your bottom line.
Finance
If you’re in serious debt this isn’t likely the right move for you, but if you just need a boost to keep you afloat through a downturn, financing is always an option. There are a lot of different kinds of finance that you can take advantage of, from government schemes to traditional loans. Asset finance is also an option whether it be refinancing plant and machinery or invoice discounting.
Constant Marketing
Waiting until you’re out of orders or work is too late to start your marketing. You need to be planning ahead with your marketing to maintain a constant flow of work to keep your business sustainable. Keep following up with customers that didn’t convert immediately. Track your results and adjust your plans if you’re not getting your ideal ROI.
Reduce overheads
As well as finding ways to increase your income, you need to reduce your outgoings. Making cuts will be hard and there will be tough choices to make, but you might find that there are some immediate changes you can make that will save you some money.
Pause your investments
Are you planning on buying anything in the new year? What investments do you have lined up, and can they wait? Ideally, this is a temporary situation you’re in (that you’re not coming back to), so don’t fret about shelving any major investments you were hoping to make. You can also consider changing the terms of your investment – leasing instead of purchasing a piece of equipment you really need, for example.
Relocate
Look at your premises. If you’re able to reduce your stock, or you’ve got lots of free space, consider moving to something smaller or subletting if your lease allows. Reducing your square footage can reduce your overheads. Moving doesn’t necessarily mean downgrading, however. Newer units can be cheaper than property you’re working in currently purely for because of the size. Besides, smaller spaces are cheaper to heat!
Cut hours
How much flexibility do you have to reduce staff hours? Starting with overtime, can you temporarily reduce hours to help with the immediate financial crisis? Redundancy is an option but should be used carefully to not impact staff morale or hinder the business’s ability to generate income. If however redundancies are necessary for the business to survive then you should not delay.
Review your suppliers
If you have a good relationship with your suppliers, you might be able to negotiate smaller minimum orders. If you have a business cooperative in your area, see if you can join one (maybe set one up yourself!). Business cooperatives are collections of SMEs that pool their resources to make larger orders for the resulting discount. Even if you have a great relationship with your current supplier, you should review them regularly and balance your existing relationship against other offerings. It might be time to jump ship to a new supplier if they can offer more favourable credit terms or discounts going forward.
Talk with your Creditors
Most will be open to negotiating extensions, credit limits and new terms, even if the process is difficult – it’s always worth asking.
Communicating your problems to your creditors as soon as you know you’re struggling will give you more time to negotiate more favourable terms. Ignoring requests for payment is tempting but it’s the worst possible thing you can do. You are in this situation and ignoring it will only make it worse.
When you do approach your creditors (whether they be HMRC, suppliers or tradespeople), be open and honest with them about your ability to pay. Don’t promise what you can’t afford.
Apply for Breathing Space
The Debt Respite Scheme is the official name for Breathing Space, a government programme that grants those individuals in debt a break from the stress of missed payments and a chance to catch up financially. This temporary protection can freeze interest, fees and charges, and halt action and contact from creditors or their representatives. There are two types of Breathing Space currently available. To see if you qualify, and for more information, see our article.
Get advice from a professional
Getting advice from someone outside of your situation will get you some perspective from someone who’s not emotionally involved. They can help you by being a sounding board, challenging you, and supporting you to make tough choices. Professionals can also lend you their knowledge on a subject to help you streamline your processes and save money. Marketing professionals can evaluate your paid advertising campaigns for example and tell you if it’s worth the money you’re spending on it.
Help can come from a business coach, an accountant, or a licensed insolvency practitioner. Brett’s Business Recovery are here to support you to plan the financial success of your business, so get in touch today.
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