Most companies will face some kind of cash flow problem at some point. Temporary cash flow problems or financial squeezes usually arise out of matters that are outside of the immediate control of the directors, but when problems like this happen it’s vital you take the right steps and move quickly to ensure the issue doesn’t escalate.

Before we list the steps that we believe can help business when facing a cash flow problem, we think it only prudent to stress the importance of having at least some kind of basic business plan to turn a business around. This should cover the very basics such as:

• Target market
• Funding
• Logistics
• Suppliers – terms
• Resources required – both human, technological, asset
• Office infrastructure

Assuming that this is all in place and the reason you’re looking at this page is down to some particular cash flow/other debt problem that has arisen, we’ve set out below the ten key steps that we think will help you identify the problem and hopefully find a solution to it.

These 10 steps turning around a struggling business are based on a life time of first-hand experiences and are not taken from any academic textbook!

1. Recognising the business has a financial problem

The most obvious starting point, has to be recognising that you have some kind of financial problem and being prepared to face up to it and deal with it. So often directors will shy away from the fact that the company now can’t pay its bills when they fall due and merely rely upon the hope factor that things will improve.

No-one is going to voluntarily step in and help you – you must accept the fact that there is a problem and consider very carefully what has caused that problem and what you can do to resolve it.

2. Understanding the root cause of the financial difficulty

After accepting that there is a problem, the next key stage, is understanding what caused it. The most common cause of cash flow problems are caused by drop in demand of the product you are selling, the competitors are providing better product or service, new entrants into your market taking away your market share, and if your business offers credit then clients/customers not paying on time.

3. Revisit cash flow forecasts

Once you recognise the problem and have understood what’s caused it, the next most important issue is understanding how that will impact on your cash flow in the short to medium term.

Whatever the problem is, will this cause you to be unable to pay your suppliers when payments are due – this includes not only trade suppliers but also PAYE, NI, VAT and utilities.

You really need to re run any cash flow and profit projections factoring in the current problem, so that at least you will have some understanding of how this will impact your business and more importantly, it should throw up how much additional finance will be required in the short term, until the problem is resolved.

It may be that you can overcome this problem by talking with your suppliers and arranging temporary extensions to your terms. However, admitting that you have a problem to suppliers is really a last resort.

4. Look for funding solutions

If it transpires that you need additional short term funding, then you need to consider very carefully how you will go about securing that funding.

Any external funding will obviously cost the business money. Are you able to raise funding from your own resources – savings or family? If the answer is no, then you may consider other options.

5. Raising finance against your assets

Does the company have assets against which it could raise finance? It probably won’t be cheap and effectively you lose title to the asset until such time as you pay off the finance, but better that, then end up in liquidation.

6. Invoice finance and factoring

Another form of asset financing that can provide fairly immediate cash is invoice factoring or discounting. This is where you effectively sell your invoices to a funder – they will usually provide you with 75%-85% of the invoice value immediately. This though is not cheap, but again it may be sufficient to tide you over until the problem is resolved.

7. Seeking help from your suppliers

If you are unable to raise additional finance, then the only other option is to consider deferring payments to suppliers. This is rather more tricky – few of us like admitting we’ve got a problem and need external help – let’s get over the pride issue – we need help!

That said, you don’t want your suppliers coming to the wrong conclusion and deciding to reduce your credit limits or worse still placing you on stop.
There’s every chance that your suppliers won’t be too happy, but our experience is that they would rather have a customer going forward than having to write off the current debt.

It’s all about how you explain the problem to them – the chances are, they’ve heard similar stories before. Be polite and be factual – restrict your explanations to the key facts and whist some third party may be to blame for your problems, don’t focus solely on that.

By accepting a degree of responsibility and by being proactive in contacting your customer with hopefully a workable solution, hopefully you will achieve your aim.

8. Approaching HMRC for time to pay

One of the key entities that you are likely to come across is HMRC – either for paying over PAYE & NI or VAT. A common mistake is to not pay these statutory liabilities on time, hoping that by the time HMRC become aware, you will have solved the issue. That doesn’t usually happen! HMRC now are far more alert to when arrears become due, mainly due to the Real-Time Payment scheme. Over the years HMRC have suffered massive write offs of Crown debt and are now far more focused on chasing liabilities almost as soon as they are due.

That said, they are slightly more commercial than in the past and are slightly more receptive to requests for time to pay. However, you will have to have a really good reason as to why you’ve got a problem and a really good plan for dealing with it.

In the event that you decide to approach HMRC for time to pay, it would really be advisable to seek some help and guidance from an experienced professional. They will know exactly what HMRC requires and the format in which the information should be presented.

It is imperative, if you are to seek HMRC’s support that the case is presented in a way that HMRC would expect. If you have reached this stage, it may be worth speaking to your accountant, who may have previous experience in such matters, or will be able to refer you to a suitably qualified professional.

9. Seeking external professional help

Do not be afraid of seeking professional help. Your accountant will undoubtedly be able to look at your problem with an impartial hat on and without the emotional attachment that you may have to the business, which whilst important, can on occasions cloud director’s judgement.
It’s likely that your accountant will be able to offer advice on alternative funding solutions and will also no doubt be able to make recommendations to other professionals if so required.

10. Be wary of who you tell

Finally, only discuss your problems with people you really trust and people who you truly believe can help.
Its quite simple having a word with a friend, but you must remember that in business there are no secrets – it’s only secret if you haven’t shared!