Skip to content

First Aid for Struggling Small Businesses

Most businesses here in the UK are classed as SMEs (small to medium enterprise – companies with fewer than 250 members of staff) – in fact, there were 4.5 million SMEs in the UK in 2016, which is more than 99% of all businesses.  This means that the British economy is heavily dependent upon SMEs to stay healthy.  When it comes to companies staying healthy and flourishing, one of the most common causes of stress in business is cash flow problems.  A temporary cash flow problem usually occurs due to circumstances beyond the business owner’s control but it can have a serious effect on the company’s ability to stay in business.  Today we’re going to look at what you can do to turn around a business that is struggling to stay afloat.

The first step is to recognise the fact that your business has a financial problem – you need to face up to it in order to deal with it effectively. 

Then it’s time to take a close look at the problem in order to ascertain what has caused it – the most common cause of cash flow problems is late payments by customers/clients.  Don’t be reluctant to contact a late paying customer directly to find out why they haven’t paid on time – be diplomatic but find out what the problem is.  The earlier you do this, the quicker you can either come to some sort of arrangement with the customer (perhaps agree to take payment in instalments) or decide to discontinue supplying a regular customer.

Once you know what the problem is and what’s caused it, it’s important to understand exactly how this will affect your cash flow in both the short and medium terms.  Whatever the cash flow problem is, it’s likely to cause you to be unable to pay your suppliers on time (this doesn’t just include your trade suppliers, but also PAYE, NI, VAT and utility suppliers).  Redo your cash flow and project projections factoring in the current difficulty so that you know how this will impact your business and how much additional finance you may require in the short term until the cash flow problem has been solved.

If you do need additional funding, consider carefully where that funding will come from.  Any external funding is likely to cost your business so raising funding from family or savings can be a good idea.  Does your company have assets against which you could raise funding?  This won’t be a cheap option and you’ll effectively lose title to the asset until the loan has been paid off, but that’s better than going out of business completely.

If obtaining funding is difficult or unlikely, then you may be able to get help from your suppliers by having them agree to you deferring payments.  You could approach HMRC and request more time to pay and it could be worth using the services of a professional in order to do this effectively - your accountant may be able to help you with this.

Last of all, be careful about discussing your cash flow problems – only discuss this with people you really trust or people that you believe can help you overcome the problem.