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August 8th 2019

Cashflow crisis management

A business needs positive cashflow to keep trading. If more money keeps going out than coming in, sooner or later the business won’t be able to pay its suppliers or staff, and the doors will shut for good.

Even very profitable businesses can experience cashflow problems from time to time, especially in periods of growth. So, what to do in a cashflow crisis?

I thought it would be helpful to spell out the things a business needs to do when faced with a cashflow crisis. Not the fluffy, “do a cashflow forcast” type stuff – that’s for later, when (and if) the business has managed to survive – I'm talking about the stuff you need to do right now. Here we go…

Extend supplier credit terms

Get on the phone to your suppliers and ask for them to extend their normal credit terms. They won’t all agree to it, but some probably will, especially if you have good relationships and a long history.

Sell underused plant & equipment

Look at the plant & machinery, vehicles, office equipment you have. Is it all being used? Sell if you can the things that are redundant or underused. Would leasing, rather than owning some assets help cashflow in the short run?

Sell stock

Look at any stock the business is holding. Could some of this be turned into cash relatively quickly, perhaps by cutting prices (OK, that’s a short term fix but we are talking about a crisis here)? Is there obsolete stock that could be turned into cash, one way or another? Is there any unpaid stock that is unlikely to sell quickly, that can be returned to suppliers now?

Review work-in-progress

Review your work-in-progress and identify any work that can be billed to customers now. Bill them now. Continue to bill any further work in progress as promptly and frequently as possible.

Renegotiate customer invoicing and credit terms

Can you renegotiate the invoicing / credit terms offered to customers, so that work is billed earlier/ more frequently, and credit terms are less generous? If not for existing contracts/ debts, then at least for any new contracts?

Chase debtors, especially overdue ones

Which customers owe your business money? Are there any that are overdue? Get on the phone and chase them for payment. Escalate debt recovery action if necessary (hopefully it won’t be necessary!).

Tax bills not yet due? Negotiate “time to pay”

If your business has some tax bills that are not yet due for payment, it’s possible to negotiate “time to pay” arrangements with HMRC. Speak to your accountant about this. This is best done before the payment due date.

If tax bills are already overdue for payment, get your accountant to speak with HMRC and explain the situation anyway, it’s less likely they will appoint debt collectors if they know the score.

Cut (or delay) unnecessary expenditure

Go through your profit & loss account and planned expenditure line by line. Identify any expenditure that can be i) delayed or ii) cut altogether, without adversely affecting the business’s trading activities. Delay or cut that expenditure.

Speak to the bank

For obvious reasons, probably the very worst time to speak to the bank is when the business is already in the midst of a cashflow crisis. But it is an option.

Can an extension to the overdraft be negotiated? Will additional security need to be put up? Will a more fundamental review of the business’s financing (debt and equity) arrangements be required, once the current crisis has been dealt with?

Raise funds personally

Can you raise funds to provide some short term cash for the business? This can be a risky strategy (since you might not get your money back, if the short term cashflow problems turn into long term problems), but sometimes it’s necessary, especially if the measures above are insufficient and the bank is unwilling to help.

If you would like to discuss any of the points raised in this article, get in touch with us today.


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