Business recovery: What can you actually do?

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By Edward Wade

Running a business is extremely hard work. It doesn’t matter how big your business is, whether it is starting out, a big hitter, or even if you rule the entire market, getting a business to succeed is hard work. Sometimes it simply doesn’t work out, you could just be unlucky and things don’t quite work out. It could be down to insufficient planning, unluckiness with cash flow, or perhaps the market just isn’t ready for your big ideas.

But just because things aren’t going well, it doesn’t necessarily mean it has to be the end of the road. If the business is struggling, but you truly believe it can work, there are some forms of recovery which can be used to help pull the business out of trouble.

Finance struggles, late paying clients and bad cash flow

Unfortunately, cash flow troubles can be a major stumbling block for a lot of businesses. Sometimes it can be down to inadequate planning, but usually it’s because of late payments and a struggle to pay debts on time. So, realistically what can you do to pull your business out of trouble when it’s struggling financially?

If it’s late paying clients and unpaid invoices that are holding up the business, then invoice finance might be the option to go for. Late payments can have a massive knock on effect to a business, with one withheld payment stopping the business from paying its dues and holding up the natural day-to-day dealings of the business. The positive is that the business is working, it’s making sales and the original business plan is working. If unpaid invoices get to such a level that a negative cash flow is in danger of bringing the business to a standstill, then invoice finance might just be the right option.

Invoice finance is generic term, which is used for several different facilities. Effectively, it allows a business to borrow up to around 90% of an unpaid invoices value, which is provided by a factoring company. The factoring company will assess the quality of the unpaid invoices, ensuring that there is not too much risk involved, before making an offer. If accepted, they will then collect the unpaid invoice, collect what they’re owed with any outstanding fees, before returning the change.

There are huge benefits to invoice finance, primarily the injection of cash, but something which is perhaps more valuable, is the time that becomes available. Without the stress of having to focus on late invoices, with a fresh cash injection an owner can focus on other areas of the business.

What about commercial finance?

Commercial finance can certainly be an option for businesses in trouble. However, it depends what sort of problems the business is facing. If a business is very unfortunate and a large piece of machinery breaks, the cost of replacing it could potentially put things into turmoil, with such a large unexpected cost, it could have a negative knock on effect to cash flow. Commercial finance can be a solution to this problem.

Asset finance, a form of commercial finance seems like an obvious fit. This allows you to purchase an asset gradually over time, without having to put down a large one-off payment. It can give businesses the opportunity to get new equipment or replace outdated, old equipment. Importantly this doesn’t put the business in too much risk, extending the cash available beyond its means.

Alternatively, if a business is asset rich, but cash low, re-financing could be the correct route to go down. It works differently to asset finance, giving businesses the option to take out a loan using their assets as security. For businesses who have the assets but are struggling to make ends meet, this is the best option.

Creditor pressure too much?

Making a business work whilst dealing with intense creditor pressure can be incredibly difficult. Sometimes it can simply become too much. If a business falls behind with its outgoings, it can get into a vicious circle of constantly having to pay back creditors. Naturally this can lead to a business’s downfall. If the business can genuinely work, but is being held back by creditor pressure a repayment plan might be the best way to move things forward. This would be a formal procedure which enables a business to work through its financial problems, gradually paying back its creditors.

A formal repayment plan would only be suitable for business which have a genuine chance of being able to continue trading once creditor pressure has been relieved.

Start a fresh

The final option for a struggling business would come in the form of a pre-pack liquidation. Although technically it would mean closing the business down through a Phoenix a new one would be set up, as the old one closes. It does not recover a struggling business, but gives owners the opportunity to start over again without pressures from the previous business.

A new phoenix company can have the same board of directors as the previous company, with the directors effectively picking up where they left off. It depends on the type of business and the value which still remains in the company, through stock, unpaid invoices and assets. Although a complicated procedure, for some it’s the only option left available.

It doesn’t matter what sort of business you have, or what sector it is in, at some point the business will struggle. Even with an intense planning procedure, there are bound to be times of unease. The more planning and preparation the better, however, if a business does struggle, there are financial solutions available to help cope with difficulties.