In order to avoid financial difficulty, businesses need to keep a careful eye on their financial position. Short term cash flow problems if not addressed can soon lead to insolvency and business failure.
Some business analysts suggest that one of the reasons why so many businesses fail in their first few years of trading is because the financials of the company cannot keep up with the popularity of the company.
In order to avoid financial difficulty it is necessary to manage your business finance carefully, this involves:
- Cash flow forecasting
- Robust credit control
- Having a firm grip on spending
- Having commercial finance options available
Some common causes of financial difficulty
Lax credit or receivable terms and expenses that are too high are common causes of financial difficulty.
To remedy these issues you could try the following:
For credit or receivable terms
- Review your credit terms to ensure your are not giving your customers too much time to pay
- Consider imposing late payment interest charges
- Offer discounts for invoices paid in less than 30 days
- Divide up payments, request a deposit to be paid up front
- Review your expenses and those of your employees at the end of each month
- Be strict, ask yourself what the business purpose of each expense is
- Shop around for the best deals
Some of the warning signs of Financial Difficulty
The first signs of financial difficulty are subtle and can be easily overlooked in regular day-to-day business activities.
However if your business is exhibiting one or more of the problems listed below, then your business may be suffering from financial difficulties and your business could be at significant risk:
- The business is constantly relying on its overdraft facility
- Running payroll requires careful cash management every month
- You are spending significant amounts of management time juggling cash rather than focusing on the business
- You are receiving more calls and threats from creditors
- Your customers are taking longer to pay their bills
- Your payments to HMRC are constantly made late
Cash flow problems create more work for the business and can take up a significant amount of time. This puts your business at further risk as you have to spend your time working on resolving these issues rather than addresses the more serious underlying issues.
Preventing Financial Difficulty
The best solution to avoiding financial difficulties and insolvency is to have preventative measures in place.
The following measures should help your business avoid financial difficulties:
- Conduct medium and long term cash flow forecasts and keep these updated
- Adopt a strong and consistent approach to credit control
- Have tight control over spending
- Arrange new sources of finance such as factoring and credit protection
- Get an objective view from a Business Finance professional
However if your business is suffering from extreme financial difficulties you should seek immediate advice.
For further information about business finance please contact our advice team on 0800 597 4757 or apply online using the form opposite.
- Business Finance – home
- Overview of Business Finance
- Finance for Business
- Funding to start a business
- Small business funding – fuelling your growth
- Small business finance for better cash flow
- Finding the best deal – search for funding
- Guide to business overdrafts
- Guide to Business Credit Cards
- Business funding for distressed businesses
- Business finance – protecting future income with credit protection
- Avoiding financial difficulty