Knowledge is power
Needless to say, the most successful businesses learn from their mistakes whilst also staying on the pulse of current industry trends. However, whilst a deep understanding of your industry and target market is extremely valuable, staying up to date with your cash flow, your liabilities and your debts at all times is just as, if not more important.
To ensure that you stay on top of business debts, you must be aware at all times of which debts are weekly, which are monthly, and which are quarterly. For example, rent and rates may be paid monthly, but some debts may be paid on a quarterly basis. When you are not making extra effort to remain aware of your outgoings, it is easy to find yourself in a position where you cannot afford to pay debts on time.
To keep a clear picture of your cash flow, along with the amounts and dates that debts must be paid, ensure that you are communicating effectively with your accountant or bookkeeper, or if these responsibilities fall to you, ensure that you create and update a spreadsheet that lists all of your debts. This helps you to see the whole picture, making it clear where there are peak periods of outflow.
Once you understand the money going out of your business at any given time, you should also analyse the inflow of cash into your business in order to ensure that you will have enough money to pay debts. To avoid falling into debt that is unmanageable and could result in insolvency, it’s important to ensure that there is always a surplus of income over your outgoings.
Remember to analyse what you have invoiced to your clients and the payment terms you have given them. Should a customer be struggling to pay on time, or refusing to pay, you will have to be aware of this in order to take actions to help you pay your debts.
Take action
If you are struggling to manage business debt, then it’s important to explore what your business could be doing better. What can you improve to ensure that you have more money coming into the business than you do going out?
Here are some important questions to ask yourself:
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Do you issue invoices in a timely manner?
By sending invoices promptly, this helps to increase the chances that you will be paid quickly. -
What can you do to reduce your expenditure?
To lower your costs, you should consider ways that you can operate your businesses more cheaply. For example, you could consider switching to a different supplier. -
Is there an opportunity to review existing client contracts?
If you are consistently stressed about having enough cash available to pay your debts as they are due, you could potentially look at reviewing existing client contracts and changing payment dates.
To encourage clients to pay you in time to help you manage business debts, there are a number of different actions that you could take. For example, you may consider offering a small discount or other benefits to a customer if they pay you promptly. This may work in your favour if you are confident that your client can pay but you need them to pay you at an earlier date.
If you are having repeated problems with a client in debt to you, then you may need to consider employing a debt collecting company to collect what you are owed. In most cases, this will considerably speed up the collection of the debt. Whilst this may seem to be an extreme action, debt collecting companies are usually friendly and professional, ensuring that you get your payment in full speedily, whilst also keeping your customer.
There are many smaller day-to-day changes that you could look to make to help manage debts, however, you may also need to consider big picture changes you could make in order to strengthen your business. If there are certain areas of the business that you are consistently losing money in, you may need to consider what changes you can make in order to be more competitive. It may be that you aren’t marketing yourself effectively and competitors have an advantage.
In some cases, you may simply need to raise your own prices or at least change your pricing structure to help tip the cash flow balance in your favour.
The most important thing to remember is that if you do face financial difficulties and have trouble paying your creditors, then you cannot afford to brush this away. It could be that this is a one-off, in which case you could explain this to your creditors in order to arrange a different payment agreement. Ignoring an issue could soon lead to further difficulties.
Whatever issues you face, in order to keep business debt manageable, you must take action at the earliest opportunity. It may be that you need to ask for help.
Contact a Licensed Insolvency Practitioner
Should you identify cash flow problems that could lead to business debt, you should always seek professional advice at the earliest opportunity. Speaking to a licensed insolvency practitioner will help you to find the right options to protect and potentially save your business. In the event that your business is insolvent, an insolvency practitioner will help make sure you take the right steps for the most beneficial outcome.
Call BEACON today on 02380 651 441.