Despite our business function, we don’t want to see companies get into difficulty! Our business exists because regrettably, and for a huge variety of reasons, businesses do get into financial difficulty and they need our help to work out the best course of action to move forward.
Good practice is to review your business financials on an ongoing basis, usually monthly and sometimes weekly. In cases where a business may be in distress or crisis, this can increase to a daily review; depending on how dire the circumstances are. Insufficient cash flow is the biggest driver for this kind of intense attention.
Brexit, COVID-19 and the war in Ukraine have brought about a rise in business costs that we perhaps haven’t seen in our lifetimes. Price hikes in export and import costs have greatly affected the cost of raw materials and inflation has risen to a 30-year high. Throw the war into the mix, which has caused energy prices to increase, and we have the perfect storm for business and the threat of recession ahead.
No matter what kind of business you are in, small or large, selling a product or providing a service, you will have seen a rise in your expenditure. How have you dealt with this?
If you haven’t taken action to address the rising costs within your business, we suggest you talk to your accountant sooner rather than later. You need a workable strategy in place. One that demonstrates a clear understanding of the areas of the business where prices are consistently rising and a plan of action for how you will deal with it:
• Put your prices up to maintain your margins, or
• Absorb what you reasonably can and pass the rest on to your customers, or
• Leave it as it is and take the full hit on your bottom line.
Turnover is vanity and profit is sanity goes the old saying – however you can’t have the latter without the former.
If a healthy sales pipeline is a dim and distant memory, it’s time for review:
• Can you diversify?
• Are there other income streams that you can bring in?
• Are there other outlets for your product or service?
• Do you have a marketing plan and is it being implemented and reviewed?
A lack of forecasting, planning and careful control will lead to financial difficulty. Action is needed if you find yourself in this position. Doing nothing or the same as you’ve ever done is not a strategy for success. Make plans and decisions based on what you have and not what you would like to have.
Revenue streams can change for a number of reasons. Consumer habits change, raw material availability and price hikes, delivery problems, overhead cost increases and of course the cost of living crisis we find ourselves in, in 2022/2023.
Knowledge is power when it comes to reviewing your revenue streams. Rather than looking at the business as one entity, analyse each stream in its own right and work out what’s up, what’s down and what’s steady and reliable. Do this regularly so you can react quickly. Then move to action.
Create a workable strategy and keep checking the numbers, adjust and react where you need to. This handy blog has some good tips.
Debtors (customers that owe you money) who do not pay on time, are the bane of most business owners' lives. The truth is, your customer might well be experiencing the same financial problems you are, and are testing their good relationship with their suppliers in order to keep going themselves.
There are a number of things that you can do to better manage your debtors, your accountant will be able to help, or you can talk to us:
• Have a clear set of payment terms and conditions
• For large projects/amounts, introduce staged payment terms
• Credit check your customer
• Ask for payment in advance
• Invoice on time – accurately
• Send out invoice reminders
• Send out monthly statements
• Pick up the phone and talk to your debtors – agree to a payment plan with them if things have become difficult
People often find talking about money, especially when you owe money, very difficult. It’s embarrassing, it’s uncomfortable and it causes stress.
The earlier you have a conversation, the better it will be for both parties. Open communication in these types of situations is what will save a good business relationship in the longer term.
If you have fallen behind with your creditors (people you owe money to, including HMRC) it is best to deal with it quickly, ignoring it, is not a workable strategy.
Your creditors will want to understand what your financial situation is. They will want to and will appreciate talking to you to agree on an acceptable way forward for all parties concerned. Contrary to what you might think, they do not want you to go out of business, but they do want fair payment for the product or service they have provided you with.
Creditors may agree to a payment plan, they may agree to continue to supply on a pro forma invoice basis. If you’ve gone too far for an open conversation then as an Insolvency Practitioner we can help you reach a satisfactory arrangement for both parties.
If you’re experiencing financial distress in your business and need some help, please do get in contact with us for a no-cost initial and confidential conversation. Call us on 01202 237337. We’re an experienced team with strong values. We like to understand your needs and ensure you have the best advice possible. We’re experts in all areas of insolvency; you can read more about us on our website here.
Our download guide is ideal for both accountants and business owners. You’ll get the benefits of our 30+ years experience in one easy to read guide.
Afterwards, you’ll not only gain a better understanding of the processes, but you’ll also discover how we’ve helped hundreds of companies and provided peace of mind to countless business owners.
