With the current cost of living crisis and economic recession, it’s very easy for businesses to be experiencing cash flow problems. When you have more money going out than coming in, this can cause stress and worry for business owners, so what can you do in this situation?

This article will look at managing cash flow problems as a business owner.

Assess your situation

First and foremost, properly assess your cash flow situation. Is this a temporary problem or one you think can’t be resolved?

What has caused the cash flow problems? Have there been changes to the business? Is it the effects of increasing bills and inflation? Have your sales reduced, and if so, why?

Are your cash flow problems temporary?

If you’ve assessed your situation thoroughly and find that it’s only a temporary problem, then you may be able to delay some of your payments to your creditors. It can be worthwhile speaking with them to explain your situation and negotiate a delay on payments or different payment terms until your cash flow is back on its feet. Many creditors would understand this situation, especially if you’re on good terms with them and have made prompt payments up until now.

You should be aware, however, that some creditors may not take this news lightly and may see it as a bad sign that you won’t be able to pay at all. They may restrict your services or reduce credit terms.

If you’re concerned about what to do, speak to the team at Fortis, who will be able to advise you on the best action to take.

Ignoring your temporary cash flow problems

Like many things in life, ignoring your problems won’t make them go away. The same goes for cash flow problems. Ignoring them can leave you in an even worse position, so tackling them is best.

If you ignore them completely, your creditors will likely react by stopping any products or services they provide to you, which will massively disrupt your business operations. If you get in your creditors’ bad books for not paying, they may act against you via a winding-up petition to gain back any monies owed. A result of this could be Compulsory Liquidation. You want to avoid this happening because it could mean that your future credit options are affected negatively, you may be seen as unreliable, and your reputation as a director or business owner could be damaged permanently.

Avoiding Compulsory Liquidation

To avoid Compulsory Liquidation, you may opt into a Company Voluntary Arrangement (CVA). With a CVA, you can keep your business operational while negotiating arrangements to pay back your creditors. You can request extended payment terms through these negotiations and even apply for debts written off.

If cash flow problems aren’t temporary

Sometimes cash flow problems cannot be resolved. When this is the case, a Creditors’ Voluntary Liquidation may be your best option. Directors can action CVLs if the company becomes insolvent or the shareholders pass a winding-up resolution.

Once the CVL process begins, the company will cease trading, and the liquidation process will begin. Your appointed insolvency practitioner will liaise with creditors on your behalf, relieving any stresses you may have.

For some situations, a CVL may not be the best option, so an insolvency practitioner can advise you on what you should do next.