Q: My company expanded too quickly and is now in trouble; we do not have enough cash to cover our payments even though the business is profitable. Can we rescue the situation?
Oct 06 2006
Answered by: Marc Barber Ask a question
The short answer is inevitably: it depends! If you have not run up too much debt and the business is truly profitable you should be able to remedy things. If however you have run up debts with the bank, trade creditors and have nowhere else to turn for short term cash then you may need to take more dramatic action.
Take a look at three things to get a better idea of what to do:
- What’s your balance sheet look like? Are you insolvent? In other words do your overall liabilities exceed your assets? You have a duty to cease trading if to continue to do so is going to make the position worse.
- Look at your profit & loss accounts for the year: is the business really profitable? If it is why have you run out of money? Is it just down to timing differences?
- Take a look at your cash flow. Make sure you have a rolling forecast so you can see and plan for income and expenditure. If your debtors or stock have risen sharply and that’s the problem you may be able to secure finance against these assets although this might be quite expensive and difficult to unravel if it’s not a long term requirement.
If the shortfall is small and short term ask your bank for an overdraft. They will almost certainly look for a personal guarantee or some other form of security. In the circumstances that wouldn’t be unreasonable. Finally, if you are trading insolvently and the balance sheet shortfall is several months profit or more then you really need to speak to an insolvency practitioner.
It’s not the end of the world and they may well be able to help you save the business. Ask around for recommendations and meet with more than one.
If you do have to put the business into liquidation of administration, once you do so the business is effectively theirs and they are acting for the creditors best interests not yours.
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