The quick answer
Firstly you need good management information. By this I mean up to date trading figures (are you making or losing money?), a balance sheet and aged debtors (can you chase debts in?) and creditors (can you defer payments?).
Cash problems do not usually go away unless you deal with them head on. The best way of working out what you need in funding is by doing a weekly or monthly cash flow. A weekly cash flow is good for the next few weeks as it focuses onto the problems.
In more detail
It can be difficult dealing with cash flow problems if you are not a trained accountant or not used to it. One problem is trying to decide if it is just a short term problem or is it longer term and you have more serious problems.
You really need to make a list of what you owe, what is owed to you and try and work out a cash flow forecast over the next few weeks or months (use an Excel spreadsheet if you need to). Do not forget salaries, PAYE and VAT as just some examples. If you are a start-up business your cash flow may be negative for some time. You can always ask your accountants to help do the cash flow forecast.
It is then a question of how you deal with the cash flow shortfall. The usual order of trying to solve the short fall is:
- A bank loan or overdraft or put your own money in.
- Ask suppliers to accept instalments including asking HM Revenue and Customs to accept a Time to Pay Scheme.
- This is the stage where it gets trickier – you may need some sort of formal insolvency procedure such as a Company Voluntary Arrangement.
- Where there is no chance of trading out then the usual solution is to close and go into liquidation.
If you can not do the numbers and work out what you owe, a good test is whether people are chasing you for money all the time and threatening Court judgements? Be aware that one thing the Insolvency Service use as a test of wrongful trading is whether you have many County Court judgements going back over a period of time that you have not paid.
