How to drag your small business out of financial trouble

By Edward Wade

For any small business, running it smoothly and efficiently is extremely hard work. For start-ups things are even more difficult. At some point during its lifespan, almost all businesses will struggle financially, and for small businesses and start-ups, when things go badly it can often mean the end. It might be through no bad business practices; it could simply be bad luck. A crucial piece of machinery breaks, seasonal variations hit harder than expected, or there could be late paying clients holding up the whole business.

Although these issues could spell the end financially, it doesn’t always have to be the case. So, what can be done?

Finance other than a bank loan

The specifics of the troubles your business is facing will change what finance options are available to you. Although a lot of new start-ups and small businesses would see a traditional bank loan as the best option, it’s not always what it seems. A bank loan will see you take on further debt, not to mention to the trials and tribulations that come with obtaining a bank loan.

If it’s late paying clients that are affecting your cash flow and the running of your business, a bank loan is not the answer. Invoice finance would be the most appropriate option, as it is the best way of dealing with late paying clients. Effectively a factoring company will advance you a sum based upon the value of your invoice. It is usually anywhere up to 90% of its value, the factoring company will then go out and collect on the invoice, taking what they’re owed and finally returning the change to you.

Not only can this solve cash flow troubles, it enables business owners to do what they do best, running the business.

Commercial finance

If the problem is coming from assets such as broken, old equipment slowing down the business, there are forms of commercial finance that can help acquire new or better equipment. Although old equipment may be ‘okay’ for the moment, if it’s not as efficient as it could be, it is still costing the business money. Asset finance provides an alternative to buying equipment outright, which can be hugely expensive. It gives you the option of paying a monthly fee to the financer over an agreed amount of time. Once the contract finishes, there is then the option to own the asset outright, or on occasion upgrade it and start again.

Alternatively, if your business is asset heavy with cash tied up in their value, there is refinance as an option. This enables you to effectively take out a loan based upon the assets value. A financer will give you a release of cash, with the asset used as security. The business will have to pay this back, upon an agreed time or they can decide to sell the asset if it’s decided it has no use.

Sort out your incomings and outgoings – Plan

Although planning might seem obvious, for small businesses and start-ups it’s not always as simple as it may appear. First and foremost, it’s essential for any business to have a cashflow forecast. This will keep track of all your incomings and outgoings and as a business it will be easier to manage and plan finances. On top of this, any business should think carefully about how they handle the influx and outflux of money.

-Make deposits your business norm. Some money coming is better than none and it can ease cash flow burdens.

-If clients are late paying, don’t be afraid to give them a gentle nudge in the right direction for payments.

-If you are having cash flow issues, don’t be afraid to talk to your suppliers and inform them of the situation. The majority of your suppliers should want you to succeed, so try and negotiate a payment solution.

-If it can be beneficial to the business, take full advantage of long repayment terms. If you have a contract to pay within 30 days, don’t push the business too much and make it struggle. There is no harm in waiting the full length of that 30 days, especially if your business itself is waiting on payment.

Being efficient and savvy with your incomings and outgoings will put you in a good position for the long run. By improving the business operations and the handling of cash flow, a young business can start off in a strong position.

Repayment plans

If the debt in question is potentially more serious than first anticipated and can’t be saved by either streamlining operations, or financing options, a formal repayment plan may be the best way forward. If the business has a strong model and a genuine chance of surviving, a formal arrangement could be the only solution left. A voluntary arrangement will pool all the business debts into one affordable monthly amount, the business will then pay off the debt over an agreed time frame. Primarily this eases creditor pressure and gives the business an opportunity to continue trading.

Although creditor pressure and business debts will seem like the end of the world, especially when a business is just finding its feet, they don’t have to be. The worst thing any owner can do is bury their head in the sand


Edward Wade is a writer from Sheffield, England. He is an avid business writer, focusing on advice for start-ups and SMEs, specifically financial help.

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