It doesn’t matter if a business is just starting out, is a big player, or even if it rules the market, running a business is extremely hard work. For lots of businesses, they won’t be a big success. This could be down to many different reasons, being unlucky with cash flow, getting hit by a large debt or sometimes the market just isn’t ready for your ideas. However, not all financial difficulties necessarily have to mean the end of the business. Dependent on the situation, there are some things which can be done to rescue the business and potentially get out of trouble.
Financial difficulties, debts and cash flow problems
Often these are unpredictable issues and although a cash flow forecast should give a good indication as to when and why these issues might occur, often they can’t be stopped. It could be a large debt that hits the company, late or unpaid invoices, or simply the business getting behind on its debts. What’s important for owners, is that they don’t bury their head in the sand as this will lead to company closure.
Unpaid invoices – Invoice finance
For business who struggle with unpaid invoices or late paying clients, invoice finance could be the right solution. Unpaid invoices are a common problem for business and often it can have a big knock on effect to cash flow, as it slows down the whole process of an organisation. Invoice finance is a general term which is used for several different facilities. Effectively it enables businesses to take out a loan based on the value of their invoices. A factoring company will normally lend up to around 90% of an invoices value. The factoring company will first assess the quality of the invoices and insure that there isn’t too much risk involved, before making this offer. There are huge cash flow benefits to invoice finance, as it can take the strain off a business and give owners a chance to focus on other areas of the business.
If the business is struggling with cash flow, or needs an extra injection of cash, there are alternative forms of commercial finance which could be an effective option. If you get hit by a large debt through the form of replacing an asset, then naturally asset finance is the obvious fit. This can give businesses the opportunity to get new equipment, or replace necessary equipment. It allows businesses to purchase assets over time and gives them an opportunity to get important equipment without having to delve too deep into a business’s savings. Re-finance is another option, but works differently to asset finance. If a business is asset rich, but cash low and needs a lump sum, it can raise finance through its assets, effectively taking out a loan with the asset used as security.
Pressure from creditors
Sometimes creditor pressure can simply be too much for a business. If a business gets behind and it is constantly having to repay creditors, naturally it can lead to downfall. A business could have gone behind through no fault of its own and ends up getting held back by debts to creditors. In a situation like this, a business may need to enter into a formal repayment plan, as a means of gradually repaying creditors and retaining control of the businesses finances.
A repayment plan will only be viable, however, if the business has a realistic chance of being able to continue trading without creditor pressure. It also must have a genuine business plan that shows the business could have success.
Close the company down and start a new one
The final option and last resort for a struggling business, could come in the form of a pre-pack liquidation. Although technically it means the closure of a company, through a Phoenix a new company is set up through the use of a pre-pack administration and a new one is born out of the ashes of the closed company.
A new phoenix company usually has the same board of directors as the old company, with the former directors picking up where the old left off. As the old company closes, the directors will have the option to buy the assets back from the old company and then start trading under a new name. Setting up a phoenix company is perfectly legal, as technically it is a brand-new company, with all the unpaid debts dying with the old company, however, all assets must be bought at market value though and it cannot use the same trading name as before.
It doesn’t matter what sort of business you have, or what sector it is in, at some point the business will struggle. Even with an intense planning procedure, there are bound to be times of unease. The more planning and preparation the better, however, if a business does struggle, there are financial solutions to get out of trouble.