Advice for Scottish company directors struggling with poor cash flow
Cash flow is vital to the success of every business regardless of its size or sector. When cash flow dries up, a company is at real risk of not being able to pay its debts and other outgoings as and when they fall due. Without swift action to tackle the problem, this type of situation can escalate surprisingly quickly, leaving a company in severe financial distress and at risk of insolvency.
So what exactly is cash flow and what can you do if your company’s cash flow position is declining?
Understanding the importance of cash flow for a limited company
Understanding the importance of cash flow for a limited company
Cash flow is what allows a business to continue operating and refers to the money flowing in and out of a company at any given time. Money comes into the business through new customer orders and invoices being paid, while money leaves the business when purchasing stock and paying bills. What is left over is profit.
While profit and cash flow are often linked, they are not the same thing. It is possible for a company to be profitable on paper, yet due to customer being late to make payments, cash flow could still be an issue.
How can I deal with company cash flow worries?
There are a number of ways to deal with poor cash flow, but the first step is to get to the root of why your company is experiencing this.
If it is simply due to customers paying late, a funding solution such as a form of invoice financing could be the answer. This channel of funding gives a company access to the money tied up in unpaid invoices immediately upon them being issued. While there is a cost in doing this – typically a percentage of the money released – it can provide a valuable element of security and reassurance when it comes to your company’s cash flow position.
What happens if my company is not making enough money?
What happens if my company is not making enough money?
Other cases of poor cash flow, however, are not a result of customers paying late. Instead they can be an indication that the company is not making enough money to cover its overheads and day-to-day running costs. They may also suggest that the company is living above its means or is operating with high levels of business debts.
If falling turnover is the cause of your company’s cash flow problems, you may need to consider a form of restructuring or refinancing in order to get your business back on a solid financial footing.
This could include entering into formal negotiations with creditors in order to reduce the amount you are paying towards your debts on a monthly basis. This will instantly boost cash flow by freeing up money which is currently reserved for repaying outstanding liabilities.
This type of creditor negotiation can be achieved by entering into a Company Voluntary Arrangement (CVA). CVAs run for 3-5 years and allow your company to repay its debts over a series of affordable instalments, with any unaffordable debt being written off.
What are my options for severe cash flow and business debt problems?
What are my options for severe cash flow and business debt problems?
Unfortunately, it is sometimes the case a company’s cash flow problems takes the business beyond the point of rescue. When a company’s financial issues cannot be turned around, placing the company into liquidation may be the most appropriate step to take.
Choosing to liquidate a company is done through a formal process known as a Creditors’ Voluntary Liquidation (CVL). As part of the process, a licensed insolvency practitioner will be appointed who will work towards identifying company assets and selling these for the benefit of outstanding creditors who will be repaid according to a set order.
Any debt which remains in the company after all assets have been realised will be written off (unless these have been personally guaranteed) and the company will be brought to an end.
How Scotland Liquidators can help with cash flow worries
How Scotland Liquidators can help with cash flow worries
If your company is experiencing problems with its cash flow and you are worried this may be causing the business to become insolvent, speak to a member of the Scotland Liquidators team today.
Our licensed insolvency practitioners operate across the length and breadth of Scotland helping company directors just like you. We can help you understand your options and work alongside you to put a plan into action. Whether restructuring or liquidation is the best route forward, we will be with you every step of the way.
