How can I turn around my limited company when cash flow is poor?
Inadequate cash flow often leads to insolvency in numerous limited companies. Recognising the reasons behind the negative cash situation is vital for reversing your company’s decline and guiding it towards profitability.
Two pivotal tests exist to ascertain a company’s solvency (or insolvency). These are:
- Balance sheet test – If a company’s liabilities exceed its assets, it’s deemed balance sheet insolvent.
- Cash flow test – If a company can’t settle bills and overheads promptly, it’s considered cash flow insolvent.
If a company becomes insolvent, whether due to cash flow or balance sheet issues, seek prompt advice from a licensed insolvency practitioner. They can objectively assess your company, identify cash flow issues, and devise a plan to turn the business around if feasible.
If your company faces cash flow issues without insolvency, take action to facilitate a turnaround and guide it back to solvency.
Cash flow forecasts
Cash flow forecasts reveal your company’s cash requirements, identifying possible shortfalls. This insight allows you to secure extra finance in advance, avoiding emergency measures when the company struggles with its obligations.
Credit control
Enhancing credit control efficiency swiftly boosts the company’s cash flow – invoicing monthly and persistently pursuing late payments stabilises uncertain cash flow.
Cut costs
Cost-cutting, combined with other actions, lays the groundwork for lasting business growth and triggers a financial turnaround. Trimming expenses streamlines the business, enhancing working capital and cash flow.
Identify new markets
Exploring new markets can extend the company’s reach, providing a boost to cash flow in the short term and future-proofing the business.
Negotiations with creditors
Negotiating with creditors may cut monthly debt payments, offering breathing space for the company to improve cash flow. While it doesn’t stop added interest, reliable payers might gain flexibility in repayment terms.
Invoice finance
Invoice finance offers flexibility, bringing certainty to a company’s cash flow. Selling customer invoices to a factoring company releases tied-up cash, easing challenges from late payments and ensuring a reliable income stream.
HMRC Time to Pay (TTP)
Negotiating a Time to Pay arrangement may offer more time for settling tax arrears. Though not a standalone solution, spreading payments can swiftly increase cash flow.
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Company Voluntary Arrangement (CVA)
If your company is insolvent but viable, a Company Voluntary Arrangement (CVA) can aid a turnaround, allowing you to trade out of difficulty. A licensed insolvency practitioner negotiates a new repayment plan with creditors.
For professional help in improving your company’s cash flow, our licensed insolvency practitioners offer specialist advice.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.