If you’ve ever found yourself in a situation where you’ve had a tough few months and you’re struggling to pay bills, or you’ve racked up some debt and although you’re making money again you’re still struggling to find the cash to pay salaries etc, this is the process we take with our clients if needed, so they don’t have to call in the insolvency practitioners.
The first step is understand where you are and what the business is doing now. Even though you might have had a tough few months, are things getting back to where they are? Are you making money? Or do you need to rethink the entire operation to ensure you do make money?
Now you can plot what you have outstanding from clients, or what you know you will have come in over the next few weeks and months. Take into account payment terms, so just because you invoices £50k worth of work last week, if your clients are on 60 day payment terms, this won’t arrive for 60 days, and even then I would suggest adding another couple of weeks to that incase they don’t pay on terms (unless you can reliably say they 100% will do!).
Now you’ve got a handle on what the profitability and the current outstanding looks like, you can use your previous bank statements (I recommend at least going back 3 months for a more reliable view) to plot in what you’re cashflow looks like on a weekly basis (you can either use a spreadsheet or software like Futrli or Fluidly to do this. First of all, plot the information you gathered in step 2, and then build out the rest e.g. weekly reliable income and direct expenses as well as all direct debits and other expenses (e.g. you might spend £100 on fuel, or £50 at Amazon per week, this all needs to go in). Make sure you don’t forget things like VAT payments or other taxes and expenses. It’s really important to make sure you get EVERYTHING here.
Much the same as the process for clients, you can plot the invoices you currently have outstanding to suppliers. Really this could be step 3 however, once you’ve fully complied your cashflow forecast, you’ll need to look at cash position of the business at different points in time and work out whether you can reliably pay everything when it’s due and have a bit left over for unexpected expenses.
If not, now is the time to start to speaking to your suppliers. Explain the situation to them, but also ensure you instill confidence that your business will continue to trade and is not in any real trouble, or won’t be if they are prepared to work with you and not against you.
Set up payment plans with them (e.g. if you have £10k outstanding that you can’t pay in one go, offer to pay an amount each week or every couple of weeks. It’s always better to start off lower than you can afford to (e.g. if you can afford £2.5k per week, start with £1k per week), as they will ALWAYS tell you your first offer is too low and want to negotiate upwards (so you might end up paying £2k per week, for example). The key here is to set up plans that will NOT renege on. Once you agree a payment plan, you HAVE to stick to it, otherwise your credibility will be straight out the window, which is why it’s really important not to overstretch yourself, and be firm when they try and get you to pay more than you can reliably stick to.
5. Cut the cr*p
Last is some housekeeping. Creating a cashflow forecast will likely draw your attention to things that you don’t need to be spending money, but are. Now is the time to cancel any unused services (no matter how small the payment is), and generally lean out your operation further.
If you find yourself in that situation now, as so many businesses are and have been over the past few months, and want to give yourself the best chance of not going under (as so business have been recently!), give these steps a go, or just give us a call and we’ll help however we can.
You’re not alone!
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