Many businesses, especially small ventures or new start-ups, experience financial problems at one point or another.
Being unable to pay your business bills is a problem, but it doesn’t mean that you have to shut up shop or that you will never be able to get things back on track.
Assess your situation
The first thing you should do is to thoroughly assess your situation.
Is your cashflow problem a temporary one? Is it one that you don’t think you will ever be able to sort out?
Temporary cashflow problems
There may be some bills that you can postpone to give you some breathing space. If you explain your situation to your creditors (i.e. the people who you owe the money to), they might be understanding if you have a good relationship with them. You may be able to work together to establish a workable payment plan.
However, you should be aware that some creditors may not be so understanding. Some may react badly when you tell them you are having cashflow problems. They might take this as a sign that you are about to go bust and leave them with unpaid bills. Their ‘knee-jerk’ reaction could make your situation dramatically worse.
If you are not sure what to do, give us a call (0161 907 4044).
We can give you (free) advice which is independent, specialist and professional. We will help you decide the best way for you to proceed, given your particular situation.
What happens if you ignore your temporary cashflow problems?
If you ignore your company’s temporary cashflow problems in the hope they will magically solve themselves, you are likely to be disappointed and to get yourself into a more difficult situation.
Your creditors are likely to quickly stop providing their services to you. Depending on what goods or services they provide your business will determine how detrimental this is going to be for your business.
A disgruntled creditor may petition the court to wind up your business in an attempt to recoup their losses. This could result in your business being put into Compulsory Liquidation. This is something you should avoid as it can have serious consequences for you, including:
- your future credit terms will be negatively affected
- you will be seen as untrustworthy and unreliable
- professionals will take a dim view of you as a director or business owner.
Avoiding Compulsory Liquidation
An alternative outcome is a Company Voluntary Arrangement (CVA).
A CVA allows your company to continue trading as you work out a suitable arrangement for your business and its creditors. It often involves seeking extra time for repayment of your debts and requests the creditors to write off a certain part of the debts (sometimes up to 75%).
If your problems are not temporary
If you feel that the situation isn’t just temporary and that you are not going to catch up with your business debts and bills, then your best option could be a Creditors’ Voluntary Liquidation (CVL).
A director can propose a CVL if:
- their company can’t pay its debts – i.e. it is ‘insolvent’
- the shareholders agree and pass a ‘winding-up resolution’.
If a company does go into CVL, it means it will stop trading and be liquidated – i.e. ‘wound up’.
A CVL acknowledges your duties as a director to your creditors – which gives you real ‘peace of mind’.
In most cases, there is no need for a face-to-face meeting and the whole process can be dealt with via email and phone.
A CVL may not be the best option for you. If this is the case, we will recommend what you should do.
Free advice for you
To find out what your best option is, contact us on 0161 907 4044 or [email protected]
Don’t ignore your company’s financial problems, in the hope that they will just go away.
Be proactive and get (free) expert help on what to do now.