Dealing with cash flow problems

2 September 2014

Most small to medium-sized businesses face similar problems at differing stages, but their biggest problem is always cash flow, either because their business has been under-capitalised, or, due to growth, now has insufficient working capital. You may also have bank loans/overdrafts and if you do they are probably personally guaranteed.

It is a fact that more effort is often put into opening new clients, than in managing existing ones. Collecting payments on time and/or improving margins becomes secondary to securing new business. Do you know your competitors' prices and do you continually compare them to yours? Have you costed your own products/services correctly? Are your margins sufficient, allowing you to trade profitably and successfully? Always be ready to adjust your overheads in line with your turnover and margins achieved.

Working with HMRC

The Revenue, HMRC, is one of your creditors; you act as an 'unpaid agent' on their behalf, collecting and paying the VAT, Payroll taxes etc. HMRC have 70,000 staff who collectively help bring in £747 billion in tax revenues; as the economy improves you can expect their attitude to harden. Controversial plans, yet to be agreed, have been discussed in parliament that will give HMRC powers to seize money owed in tax directly from individual bank/building society accounts, or ISA accounts. (Read the recent online article: Taxman's latest powers will test public patience.)

Solving cash flow problems

Once you face a cash flow problem your vision, time and management, will centre on who to pay first and what excuse to give to the others; or you will begin to simply ignore the calls. Suddenly, most of you suppliers will require immediate payment and your accounts with them will be put on stop. The vicious circle takes over, made even worse if you have started using money due to the Revenue to pay other bills. Less and less time is spent managing and bringing in your business; more and more time will be spent on fire fighting.

At this stage, which may take months to reach, you need help or advice, or both. And matters will be more difficult than they would have been if your cash flow problems had been dealt with at an earlier date.

You can discuss your options with 4squared and we will advise you of your best solution, all at no cost. We can also deal directly with your problems, if you so wish.

Read about how we can help you with cash flow

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