Should I keep going? Running a business whilst running out of money

Read time: 5 minutes

Times are tough for UK business. You may be reading this because your business is having a hard time. But what can you do? I’m going to explain the benefits of getting help from someone on the outside, like an accountant, and the value of using experienced professionals.

Realise you have a problem

Businesses that are suffering should face up to the reality of having problems with cashflow or struggling with debt. Their directors need to own the fact that they have to spend more money than they would like to at times like this. If this puts them in a difficult position, they should start dealing with this as soon as possible.

By admitting you have a problem and dealing with money troubles quickly, you limit the pain – financial, emotional and legal.

Running out of money

I am often asked for help by business owners who have run out of cash and have a mountain of debts. The directors often have a fantastic business that has been struck with an unmanageable pain. Sometimes disaster has struck; sometimes the debts have slowly built up and caught the owners a little by surprise. It can feel so unfair.

But there are a whole load of businesses who would benefit from this help, even though they have not run out of cash. Recently, we have seen an increase in businesses running aground who would usually manage to pay their bills every month, albeit a little hand-to-mouth. They have not been able to cope with the extra demand coronavirus has put on them.

Maybe they have had some government support, but that is starting to run out and will need repaying. Things can so quickly turn from manageable to unmanageable when profits are small and cash is spent as soon as it comes in.

Paralysing stress

One of the common problems caused by running out of cash is that the stress can paralyse you. You have to work so much harder just to stay afloat. Every phone call drains you and the people you are speaking to are relentless. It is demanding and exhausting. You dare not think about what you will do tomorrow or plan your way out – it would worry you too much and feel impossible to achieve. Anyway, by the time you have thought about worrying, someone else has called you to demand payment and you are back in to firefighting mode.

This stress can stop you from making any decisions, regardless of whether they are good for the business or not. This is a great reason to get help from outside your business – from someone who can help you see what is going on without living with that stress all the time.

I think this is one of the reasons so many directors plough personal savings into a business that has already run out of cash .They are paralysed from planning their way out and cannot objectively see that there are other options available to them.

This stress is horrible; I have seen it overwhelm clients. This is why I think it is so important to protect yourself from this as early as possible.

How do I know if I need help?

If my business had unmanageable debts or I felt that paralysing fear, I would absolutely want help. I would want to understand the options available to help me pay off my debts, I would want help with predicting how much cash I have coming in and I would want to know what I need to do (or not do) to stay on the right side of the law.

But I would also want help if I was getting through each month hand-to-mouth, even if everything feels manageable right now. Small changes to these businesses can make a fantastic difference. Because the changes are smaller, they are often much less painful too.

Know it and own it

The most memorable meetings for me are often the ones when a client admits that they are struggling. When we write out what they owe on paper, work out how realistic it is to repay their debts and discuss what they can do next. They are empowering meetings; it’s fantastic to take back control.

So many come out of these meetings feeling better than at the start. Maybe it is the relief of having a plan, maybe it is simply the liberation of sharing how bad things have felt. It is an immense feeling and the meetings are often exhausting – but so rewarding.

The aim of this first meeting is to understand what the problem is and to know how bad it is. We will build a financial picture of the business and start predicting how much cash the business can expect to make in the coming weeks or months.

We normally seek the advice of a professional Insolvency Practitioner (IP) from the beginning, inviting them in to our meetings. This is often a big step for clients, maybe because getting an IP involved feels like one of those moments when you really own the trouble that you face. But, far from being the business world’s grim reapers, the right IP will help you to avoid needing their services whenever possible. They have so much experience with struggling businesses and they are very good at dealing with debts.

This is a time to avoid cutting corners and to seek help from the outside – from experienced professionals. How can you rely on yourself or even experienced amateurs when the pain is paralysing and the impact on both your finances and health can be so long lasting? I am absolutely certain of this.

One of the firms we work with is The Insolvency Company. We asked their director, Stephanie Buckley, what they think about the influence of the pandemic on businesses:

Now more than ever there are businesses suffering- entrepreneurs, directors, employees, and everyone in between are feeling the effects of this pandemic! The stigma around financial difficulty can make it difficult for people to seek help but The Insolvency Company’s top tip is to seek help early! The sooner individuals and companies can get the help they need the less debt and anxiety is caused because there are often more options than people realise.

As there can be more ways out of financial difficulty than many think- dependant on an individual’s situation, everyone is actively encouraged to seek which suits them best! A recent blog post gives a high level overview to some possibilities for those in financial difficulty;

Stephanie Buckley, The Insolvency Company

Planning a way out

So, armed with a picture of the business and a forecast of the incoming cash, we discuss what happens if they run out of cash and whether it can be avoided.

We will offer advice about the legal responsibilities under the Companies Act. For example, explaining when debts become a personal responsibility rather than being covered by a company’s limited liability status.

We can help plan who to pay and in what order. Our previous experience of dealing with your creditors can be invaluable because it can give you a different perspective on how you can communicate with them.

Looking after employees is often high on the mind of business owners. This is another area we can help you to understand.

Staying in the race

But it is not all about planning for the business to end. If the business owner wants to keep going, we will explore the changes that could be made to keep them in the race.

We start with that same financial picture and then discuss what can be done to improve it. This will always start with improving the business’ cash flow, either by making more or spending less. Planning ahead makes sense for any business, even though it can be difficult to do during a pandemic.

This will sound too straight forward to be advice: to make an insolvent business solvent changes must be made that mean the cash going out is less than the cash coming in. Yet, so many find this an impossible challenge. Surprisingly, it is not the businesses who have run out of cash that struggle the most with this concept.

I guess it is harder to cut costs when your business has been living hand-to-mouth, for example by paying employees using money that ought to have been set aside for paying taxes or debtors. It can feel like admitting a failure when you have been ‘getting away with it’ quite successfully up until now. But surviving is not failing. Making tough changes in order to survive requires strength.

Regardless of whether we are working to help the business to survive, or the owners to survive the business, the changes can be tough to make. So, we finish our first meeting by helping them to set goals. These goals give realistic targets to achieve before we meet again. First time around, maybe these will be small steps towards the finish line but, with help, the fear and stress of a struggling business can be a problem of the past.

If you can relate to this article, or running your business is becoming overwhelming, please do get in touch. Sharing the problem can be the first step towards feeling free.

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