Cash problems don’t go away unless you deal with them. That is the hardest thing to do. Work out exactly what you owe to whom and how you can pay it back in a reasonable amount of time? Most people you owe money to will accept payment back by installments if you communicate with them.
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 months (use an Excel spreadsheet if you need to). Don’t 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’s 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 installments including 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’t 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.