How can I save my limited company from financial trouble?

Financial problems can arise very quickly in business. The sudden loss of a major contract or client jeopardises a company’s future, and can be the precursor to official insolvency. But it’s not only sudden, unexpected events like this that result in financial distress.

If you’re unaware of your sales, cash and expenditure figures day-to-day, or are using inefficient systems and processes in-house, for example, the end-result can be equally devastating.

Common causes of financial distress include:

If you fear that your business is going under, how do you rescue or save it and return to profitability? Seeking professional advice is vital in this situation – it ensures you identify the cause of the problem, and take the most appropriate steps to rectify the situation.

Initial steps to save a company in trouble

One of the first considerations if your limited company is in financial decline is whether or not it is solvent. If it isn’t, or it’s close to insolvency, you’ll need to cease trading straight away. By law you must put your creditors’ interests first to maximise their returns, rather than acting in your own interests or those of the company.

In assessing solvency, and to gain a better understanding of your figures/cash availability, you should update cash incomings and outgoings on a daily basis, and regularly check your bank balance.

This allows you to deal with any additional cash needs as they arise, and provides a wider view of what is causing your company’s finance issues.

Common causes of financial trouble, and what to do

Lack of sales

You could consider cross-selling or up-selling more products to your existing customer base, or taking a closer look at the stock that sells, and which has become obsolete. Are your competitors entering new markets, or operating in ways which address a general downturn? If new markets are an option for you, consider your overall selling strategy to get the business back on track.

Poor in-house debt collection

This is a common issue that compromises cash flow to such an extent that, at some point you’re going to be unable to pay the bills as they fall due. Implement efficient and regular payment collection so you have a constant influx of working capital throughout the month. This includes issuing invoices as work is completed or products delivered, rather than invoicing in bulk at the end of the month.

Credit management issues

Poor credit management includes failing to credit-check new customers, or take up trade/bank references to make sure they’re credit-worthy. If you find out that a prospective trade customer has a poor history of repayment, you can protect your business by either refusing their custom, or offering a very small initial credit limit.

Difficulty in obtaining bank finance

If your bank is reluctant to lend, or you want to take advantage of greater flexibility, alternative finance can provide working capital on a regular basis, or a cash lump sum that helps you out of decline.

A company in financial trouble needs fast access to cash, without the burdensome administration that’s commonly required when applying for a ‘standard’ bank loan. Flexible alternatives include:

• Factoring and invoice discounting whereby you ‘sell’ the value of your sales invoices to a financier, and receive a monthly cash advance immediately after the issue of each invoice.
• Asset-based lending which involves selling one or more assets to a financing company. You’re able to continue using the asset(s) in question, but receive a cash lump sum that can be used to turn business around.

Company Voluntary Arrangement (CVA)

If the company is already insolvent, but deemed viable in the long-term by a licensed insolvency practitioner, you may be able to enter a CVA which protects the company from creditor legal action.

Your company makes a single monthly repayment which is distributed to the creditors included in the arrangement, and all interest and charges are stopped.

If you’re to rescue or save your company once financial trouble has hit, you need to act quickly, and obtaining professional guidance is key to a successful outcome. Real Business Rescue are insolvency specialists, and have contacts with over 50 alternative lenders in the UK.

Call one of the team to arrange a same-day consultation free-of-charge. We’ll establish where you stand, make sure you comply with your statutory obligations as a limited company director, and guide you towards the best options.