Running a business is hard work, whether it’s a start-up a big player, or even if you rule the market. For a lot of owners, not every venture will be a big success. The business plan might not be right, you could be unlucky with cash flow, or perhaps the market just isn’t ready for your big ideas. But not all financial problems have to spell the end of a business. Depending on your situation, there are forms of rescue to suit the troubles you could be up against.
Cashflow problems, debts, late payments
A business could encounter any of these setbacks at almost any point, they are often unpredictable and if an owner buries their head in the sand, can lead to the closure of a company. It could be a large debt which hits the company, or late payments from clients, oh perhaps the business got behind on its debts, or repayments.
Late paying clients – Invoice finance
Invoice finance can be a fantastic solution for business who struggle with late paying clients. It is a common problem for businesses and it can have a massive knock on effect to cash flow. Invoice finance is a general term used for several different facilities and effectively, it enables businesses to take out a loan based on the value of their invoices. A factoring company will typically lend up to around 90% of the value of an invoice, after first assessing the quality of the invoices and making sure there isn’t too much risk. For businesses who have late invoices, there are huge benefits to invoice finance, as it completely takes the strain off and helps owners move along cashflow within the business.
Another alternative comes in the form of commercial finance. This encompasses several different options, such as asset finance and refinancing. If it’s a large debt which has hit you through the form of needing to buy a new asset, asset finance effectively allows a business to purchase an asset over time. This can give businesses the opportunity to get important equipment without having to break the bank and not damaging cash flow too much. Re-finance gives businesses the opportunity to borrow money, based upon the value of its asset. So, if a business is asset rich but cash low, it can finance assets to raise funds.
Creditor pressure too much
If the debts involved with the company are more serious than late payments, or an asset costing too much, then a business may have to go through a different procedure. If cash flow or lack of incomings have such an effect that a business struggles to pay its creditors, then it may need to enter into a formal repayment plan.
A repayment plan is only viable if the business could realistically continue trading if the business plan could work and if creditor pressure was removed. A company voluntary arrangement (CVA) would allow a business to condense creditor debts into affordable monthly payments. If entered into, a CVA gives businesses the opportunity to balance liabilities over a five-year period, with any remaining debts written off at the end.
One final option as a last resort could come in the form of a pre-pack administration. Although this is technically the end of the company, there are ways of starting things over and trading again. The term phoenix refers to a company which is usually set up through the use of a pre-pack administration.
A phoenix will normally have the same board of directors as its predecessor, as those directors will tend to pick up right where the old company left off. If possible, they will buy the assets back from the old company and continue trading under a new name. It is perfectly legal to set up a phoenix company, even if the assets from the previous company are bought by the same directors, as long as it is at its market value and a new name is chosen for the business.
Almost all businesses will undoubtedly struggle at some point. Even if you go through a rigorous planning procedure, problems will occur. The sooner a business can see them coming the better, however, if an owner finds themselves in a sticky situation, there are financial solutions to be found which can help get the business out of trouble.