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Don’t bury your head in the sand
1 February 2023

No one wants to find themselves in a situation where you’re unable to pay suppliers, wages or yourself and even if you’ve done everything right, whether invoices get paid or not, is usually out of your control.

In our 7 years of helping businesses with their finance function we hadn’t seen a single client go into liquidation.  Sadly, as times get tougher, this is no longer the case and in the space of just 5 months we have seen 4 clients find themselves in this desperate position.

So this year we want to help businesses do everything they can to avoid the risk of liquidation, starting with this blog.

So how can you reduce the risk of Liquidation? This a difficult question and the answer is different for each business. We understand that no business owner wants their business to fail – you will gave put a lot of time, effort and money into the company and want to do whatever you can to avoid liquidation. There are a few measures that companies can do to hopefully avoid this situation.

Manage Cash Flow

Managing cash flow is important for businesses of all sizes – without this you’re steering your business blindly each month. If your business spends more money than it brings in, eventually, it can lead to insolvency. We would recommend that you invoice promptly, recover any debts owed to you, negotiate payments with long term clients and chase unpaid bills sooner rather than later. Having a cash flow forecast and budgets in place will help you to keep on top of your finances effectively and help keep the business profitable.

Build relationships with creditors

Building strong relationships with creditors is important. We would suggest being transparent and contact lenders promptly of any issues as lenders would usually rather receive lower monthly payments than nothing at all. The sooner you get in touch, the more time you have to negotiate some breathing space. Building a good record of prompt payments and showing that you are actively working hard to solve any issues will also help.

Be open with your suppliers

Communication is key when managing your supplier relationships, so if you’re struggling with cash flow management, you might find it beneficial to re-negotiate payment terms so you can better manage your outgoing payments.

Keep accurate financial reports

Even a minor error in a report can lead to serious consequences, so keeping accurate reports is crucial. We recommend double checking any information and completing them in a timely manner. Even if the business is bringing in a good amount of money, if you’re not managing if correctly and keeping accurate reports, you could end up spending it too quickly or on the wrong things.

Keep your business and personal accounts separate

We can’t reiterate this enough. While it may sound easier to keep your business and personal money in the same place, it is actually a risky strategy that can cause some major problems in the future. HMRC strongly recommends that business and personal finances are kept separate – not doing so could see damaging repercussions further down the line. Mixing accounts may cause you to pay more tax than you owe which may cause cash flow problems or you may miss some business payments when you come to figure out how much you owe for your tax return. If you under pay your tax return, not only will you owe more the following year, but you could be charged interest and face penalties putting your business at risk.

Reduce overheads

If you’re struggling with your finances, it may be worth looking at reducing your overheads. This can be a difficult decision, but you may have no other choice. Some areas to consider looking at might be reducing your workforce (maybe even reducing some staff’s hours could eliminate some pressure). Other costs you could reduce are office space, outsourcing, utility costs and reviewing your equipment leases.

Seek expert advice

Nobody knows your business better than you and only you know how serious the situation really is. It can be easy to bury your head in the sand but we would recommend seeking professional advice sooner rather than later. An expert can give you timely, impartial advice and seeking this earlier gives you more time to access the options available for you. These are just some of our recommendations, professional advice should always be sought before taking any action. We have a great network of trusted partners if you do need to speak to someone.

We’re planning on giving away lots of tips, advice, information and guidance throughout the year, so if you have a burning issue that you’d like us to cover, please let us know.