Financial forecasting, particularly cash-flow forecasting, will give your business the best chance to navigate bumps in the road or seize opportunities.

Don’t look through rose tinted glasses when doing this – it’s better to be realistic and if anything, err on the side of caution.

Make sure that you know what your breakeven point is as this is an essential benchmark to help you understand what income the business must generate to meet its on-going costs.

An additional benefit of carrying out this exercise is that it enables business owners to reflect and compare actual performance with that predicted at the outset.

This is typically prepared for 13-16 weeks in advance.

Consider introducing personal funds to the business as secured debt

All too often business owners introduce funds to their company as a simple director’s loan or equity without giving it enough thought.

It may be worthwhile to consider introducing the funds as secured debt instead. This is particularly relevant if there isn’t already a secured lender registered with the company.

Being a secured lender offers a number of advantages should the company become distressed:

o Your debt ranks higher than unsecured creditors

o A secured lender has more control e.g. deciding on a particular insolvency process and insolvency practitioner even when presented with a winding-up petition

o Fees and interest can be applied

The charge (known as a debenture) would have to be executed correctly and registered at Companies House.

Communication is key

It’s a cliché but do not bury your head in the sand, it won’t achieve anything positive for you or your business. Take a pragmatic approach and deal with the issues head on. It will reduce personal stress and give your business the best chance of progressing.

o Take professional advice early – typically from your accountant or an insolvency practitioner

o Open dialogue with creditors, don’t ignore them. This will improve your relationship with them which could lead to much needed flexibility and could avoid unexpected action such as CCJs and winding-up petitions

o If HMRC is a key creditor, then there are options available including time to pay arrangements

o Communicating appropriately with your wider team and workforce may stop rumours spreading or key members leaving

Get lean – Improve efficiencies

Your breakeven point should be as low as possible. Achieving this requires cost cutting wherever possible. There are many ways for a business to reduce costs but of course these need to be considered alongside the overall needs of the business.

Some things you could consider are:

o Investigate cheaper providers of utilities such as gas, electricity, and water

o Alternative suppliers

o Look at what premiums and services you are automatically paying for and cancel any which are not necessary

o Don’t automatically assume that your lender is giving you the best deal, look around

Be mindful not to let your business drain you

Business owners often struggle to acknowledge that they are separate entities to their business.

Not recognising this can lead to personal financial issues:

o Overdrawn directors loan accounts

o Personally guaranteed business debts

o Using excessive personal funds to support the business

This goes back to being brutally honest with your view of the business and minimising emotional attachment when doing so. Does the business REALLY work.

Aside from the potential financial drain, remember health before wealth.

Set up another company in advance

Should your exiting business need to go through a formal insolvency process, but there is a promising underlying business, you may wish to purchase the business and assets through another company.

Have this set up to enable a seamless transition. This will include having:

– Company registered at Companies House

– HMRC references

– Business bank account (these can take a while)

– Licences in place in industries that require them

Get in touch

If you need support with your financial forecasting, or you’re concerned your business is in a difficult situation that it can’t get out of, get in touch with our team at Cowgills, or with me directly at [email protected], and we’ll be able to support you. Don’t leave it until it’s too late.