Like many business owners, the current economic climate may have left you in a position where your business is suffering cash flow problems. This may be the result of bad debts, excessive overheads or because competitors have driven prices down to less profitable levels.

Whatever the cause, the most important thing is that you have recognised the problem and are starting to take action.

If your business is suffering cash flow problems there are a number of options that you can consider depending on the reasons for the problems and the type of business you operate in. If the underlying business is solid and you have been able to address the issues that led to the current cash flow problems then one of the following options is likely to be suitable for your business:

1. Raise Additional Finance

This could be through conventional asset finance or through invoice finance depending on your business asset base and the nature of the business. This can be an excellent way to relieve cash flow problems as funds are made available up front as a lump sum.

...the most important thing is that you have recognised the problem and are starting to take action.

However, it can be difficult to raise additional finance if your business has been suffering cash flow problems as its credit rating is likely to have fallen considerably. It is also common for a business not to have sufficient high value unencumbered assets to enable it to secure enough funding. In these circumstances, it is usually preferable to look at invoice financing as your business debtor book will usually be its largest unfunded asset.

With either type of finance, it is extremely important to understand your options fully and to ensure that you get specialist advice before making a finance application. We are able to provide help and advise on a variety of financial solutions, particularly if your business has suffered the negative credit rating impact cash flow problems can bring.

2. Look to Agree an Informal Payment Plan

If, like a lot of businesses, your cash flow problems have led to significant arrears with a just small number of creditors then it may be possible to agree an informal payment plan with them. This is particularly true if the bulk of the debt is to HMRC who will sometimes agree to a Time to Pay Arrangement where the business repays the debt on a monthly basis over a period of up to around 9 months.

As Licensed Insolvency Practitioners, we can present a structured plan to your creditors which clearly demonstrates the negative impact of failure of the business should your creditors fail to accept. This plan will be based on cash flow projections and be supported by financial comparisons between the proposed payment plan and the return to creditors should they force the Company into Liquidation. By engaging us to put the plan forward on your behalf, you significantly increase the chances that creditors will agree to a more realistic plan with you paying a smaller amount per month over a longer period.

3. Propose a Company Voluntary Arrangement (CVA)

If your business debts are to a large number of creditors or if the amounts owed are such that a longer payment plan is required then you should consider proposing a Company Voluntary Arrangement or CVA. A CVA is a legal contract between your Company and its creditors where the business pays a monthly payment based on what its cash flow forecasts say it can afford. What the business is effectively saying to its creditors is that it cannot afford to pay them in full but wants to pay all it can afford.

As the CVA payments are based on what the business can afford rather than the debt owed, many CVAs result in the business paying less than 50% of the total debt back with the rest written off after 5 years. As a CVA allows the business to continue in its existing legal form, CVAs also have the important benefit of allowing ongoing contracts to continue.

A CVA is a complex document that requires the support of your business creditors so it is important that you get the right help at an early stage. We provide free initial advice on whether a CVA is likely to be appropriate and are successful in obtaining approval for over 90% of the CVAs proposed through us.

You can find out more about proposing a Company Voluntary Arrangement here.

It should be noted that each of the above options requires the business to have returned to profitability in order order to work, otherwise it will just end up further into debt in the long term. If the business still has ongoing issues such as prohibitively expensive rent, rates or employee costs and has not returned to profitability, it may be more appropriate to seek an alternative option:

4. Restructure the Business

If your business cannot raise sufficient new funding or realistically enter into a successful payment plan then you should look to restructure your business through a formal insolvency procedure such as Pre Pack, Administration or even Liquidation. This not only removes the difficulties of dealing with HMRC and their lack of support but also enables you to deal with any other debts the Company has built up. This is often a far cheaper alternative which also allows you to move on with your future business more quickly without carrying forward past financial difficulties.

...we can guide you through all aspects of the restructuring process.

This is a particularly appropriate if your underlying business has the potential to be successful but is being held back by ongoing contractual obligations such as long and expensive leases on its trading premises, excessive staffing costs or commitments to customers or suppliers that are no longer commercially viable.

We can guide you through all aspects of the restructuring process from deciding on the best route to take for your business to setting up a new Company and will always ensure that you fully understand the process along the way.

You can find out more about Administration here and about Pre Pack here.

5. Place the Company into Creditors' Voluntary Liquidation (CVL)

If your business has assets or you want to try to save all or part of the underlying business then it may be appropriate to place the Company into CVL. This is a Liquidation which is instigated by you as a director using an Insolvency Practitioner of your choice.

Voluntary Liquidation has the following benefits:

• Nominate a Liquidator of your choice who will work with you to ensure the best advice for you and your business;
• Leave the company debts behind to be dealt with by the Liquidator;
• Set up a new debt free business and buy back business assets for their market value;
• Get out of any leases that are no longer required;
• Lay off redundant staff who can then be paid redundancy and outstanding wages by the Redundancy Payments Service;
• Close the Limited Company in a fast and controlled manner enabling you to shut down and move on if you don’t want to continue.

Once the Company is in Liquidation, it is the job of the Liquidator to sell the Company’s assets for the maximum amount possible. More often than not, the Company assets are of most value to you in a successor business and as such you are able to make an offer to buy them back without the burden of the Company’s historic debts thus allowing you to save the underlying business. You may also find that the assets seem cheap compared with their original purchase price as their value has decreased significantly over time.

If you have already received a winding up petition, the petitioning creditor will need to agree to either withdraw or dismiss the petition in order for the Company to be placed into CVL. A good Insolvency Practitioner will usually be able to agree this with the creditor's Solicitor on your behalf although you are likely to have to pay the petitioning creditor's legal costs to date which are usually in the region of £1,000 to £2,000. You will also need to act quickly as the Insolvency Practitioner will ideally need a couple of weeks between your instruction and the date of the winding up hearing in order to complete the CVL appointment process.

You can find out more about Voluntary Liquidation, including details of the process and likely costs on our dedicated Creditors Voluntary Liquidation page.

You can also find out about making employees redundant and about your redundancy rights as a director on our Redundancy page.

If your business is suffering the effects of its cash flow problems and you want to know more about the different options that are available and how they could work for your business, call us free on 0800 066 3122